Owens & Minor Annual Report 2000

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FY2000 Annual Report · Owens & Minor

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OWENS & MINOR, INC.

OWENS & MINOR, THE NATION’S LEADING DISTRIBUTOR OF NATIONAL

NAME BRAND MEDICAL/SURGICAL SUPPLIES, USES ITS EXPERTISE

IN HEALTHCARE, LOGISTICS AND TECHNOLOGY TO DELIVER THE

DIFFERENCE WITH CUSTOMERS, TEAMMATES AND SHAREHOLDERS.

2 0 0 0 A N N U A L R E P O R T & F O R M 1 0 - K

M I S S I O N

To create consistent value for our

customers and supply chain partners

that will maximize shareholder value

and long-term earnings growth; we

will do this by managing our business

with integrity and the highest ethical

standards, while acting in a socially

responsible manner with particular

emphasis on the well-being of our

teammates and the communities

we serve.

V I S I O N

To be a world class provider of supply

chain management solutions to the

selected segments of the health-

care industry we serve.

V A L U E S

We believe in our teammates and

their well-being.

We believe in providing superior

customer service.

CompanyOverview

Owens & Minor, Inc., a Fortune 500 company headquartered in

Richmond, Virginia, is the nation’s leading distributor of national

name brand medical/surgical supplies. From its distribution

centers throughout the United States, the company serves

hospitals, integrated healthcare systems and group purchasing

organizations. Owens & Minor offers its customers not only

diverse medical/surgical products, but also integrated services

in supply chain management, logistics and technology. Owens

& Minor works closely with customers to help them improve

inventory management and control healthcare costs.

Founded in 1882 as a wholesale drug company, Owens & Minor

refined its mission in 1992, selling its wholesale drug division

to concentrate on medical/surgical distribution. Owens & Minor

is now leading the way among healthcare distributors in exploring

ways to use technology to complement and grow its business.

Owens & Minor is also working to expand its role in the supply

We believe in supporting the com-

chain by working with manufacturers as a logistics provider.

munities we serve.

We believe in delivering long-term

value to our shareholders.

We believe in high integrity as the

guiding principle of doing business.

C O N T E N T S

Financial Overview

Letter to Shareholders

O&M Delivers

Delivering the Difference

Board of Directors

Corporate Officers

Distribution Network

2000 Financials

Owens & Minor’s common shares are traded on the New York

Stock Exchange under the symbol OMI. As of December 31, 2000,

there were approximately 15,000 common shareholders.

A B O U T T H E C O V E R

At Owens & Minor, we focus squarely on delivering the difference

with our customers, our teammates, and our shareholders.

Throughout more than 100 years in the healthcare industry,

Owens & Minor has prospered by focusing on customers, seeking

ways to improve service and lower costs. The use and application

of leading-edge technology is now helping us to leverage our

logistics expertise and highly skilled workforce. At Owens & Minor

we also strongly believe that focusing on the well-being of our

teammates and the communities we serve contributes to

our ability to deliver long-term value to our shareholders.

2000 Financial Overview

(in thousands, except ratios, per share data and teammate statistics)

Year ended December 31,
Net sales(1)
Net income(2)
Net income per common share – basic(2)
Net income per common share – diluted(2)
Cash dividends per common share
Book value per common share
Stock price per common share at year-end
Number of common shareholders
Shares of common stock outstanding
Return on average common equity

excluding restructuring(2)

Return on total assets

excluding restructuring(2) (4)

Gross margin as a percent of net sales(1)
Selling, general and administrative

2000
$3,503,583
33,088
$
1.01
$
0.94
$
0.2475
$
6.41
$
17.75
$
15.0
33,180

1999
$3,194,134
27,979
$
0.86
$
0.82
$
0.23
$
5.58
$
8.94
$
15.0
32,711

1998
$3,090,048
20,145
$
0.56
$
0.56
$
0.20
$
$
4.94
15.75
$
15.5
32,618

Percent Change

00/99
9.7%
18.3%
17.4%
14.6%
7.6%
14.9%
98.5%
–
1.4%

99/98
3.4%
38.9%
53.6%
46.4%
15.0%
13.0%
(43.2%)
(3.2%)
0.3%

16.5%

16.0%

15.9%

3.1%

0.6%

3.4%
10.7%

3.1%
10.7%

3.3%
10.8%

9.7%
–

(6.1%)
(0.9%)

expenses (SG&A) as a percent of net sales(1)

7.7%

7.8%

Outstanding financing(3)
Capitalization ratio(4) (5)
Average receivable days sales outstanding(1) (4)
Average inventory turnover
Teammates at year-end

$ 233,533

$ 280,790

40.4%
33.3
9.5
2,763

47.2%
34.9
9.2
2,774

$ 225,000

8.0%

(1.3%)
(16.8%)
43.4% (14.4%)
(4.6%)
33.5
3.3%
9.8
(0.4%)
2,661

(2.5%)
24.8%
8.8%
4.2%
(6.1%)
4.2%

(1) Net sales, gross margin, SG&A expenses and all related ratios have been restated for all periods in accordance with Emerging Issues Task Force

Issue 00-10, Accounting for Shipping and Handling Fees and Costs. See Note 1 to the Consolidated Financial Statements.

(2) In 1998, the company incurred $11.2 million, or $6.6 million after taxes, of nonrecurring restructuring expenses. In 2000 and 1999, the company
reduced the restructuring accrual by $0.8 million and $1.0 million, or $0.4 million and $0.6 million after taxes. Excluding restructuring, net
income per diluted common share in 2000, 1999 and 1998 was $0.93, $0.80 and $0.75. See Note 3 to the Consolidated Financial Statements.

(3) Consists of debt and amounts financed under the company’s off balance sheet receivables financing facility. See Notes 7 and 8 to the

Consolidated Financial Statements.

(4) Excludes the impact of the company’s off balance sheet receivables financing facility.

(5) Includes mandatorily redeemable preferred securities as equity.

Net Sales
(billions)

’00

’99

’98

$3.50

$3.19

$3.09

Net Income Per Common Share—Diluted

’00

’99

’98

$0.94

$0.82

$0.56

Dear Shareholders,

Teammates,Customers,Suppliers

e are in the business of creating
and distributing value. We did an out-
standing job of doing just that in 2000.
Shareholders received a 98.5% increase
in share price and a stronger balance
sheet. Customers received the best
service this industry has to offer and
innovative technology to support it.
Suppliers received a proactive effort
to make our business together more
efficient, and teammates received a
share of the profits and the care and
respect they richly deserve.

Sales were $3.5 billion, up 10 percent from
sales of $3.2 billion in 1999. This was a
record for the company. Earnings per diluted
common share before restructuring were
$0.93, up 16 percent from the year before.

We accomplished our sales, profit
and asset management goals for the
year. We completed the conversion
of Medix by mid-year; we grew our
business profitably; and we improved
productivity throughout the company.
Our successes show that the technol-
ogy we have invested in is working
and is making a difference for us and
our customers.

2
2

We did all this with the greatest
team in the world. As our company has
grown we have worked hard as a team to
preserve the values that drive our compet-
itive spirit. Values such as integrity, respect
for each other, super service, and trust
in our customers and suppliers dominate
every day. This foundation, and our nur-
turing culture, coupled with an indomitable
spirit and a will to win honorably gives
us an edge in the marketplace.

Financial Results
Sales were $3.5 billion, up 10 percent
from sales of $3.2 billion in 1999. This
was a record for the company. Earnings
per diluted common share for the year
were $0.93, up 16 percent from 1999.
Net income for 2000 was $32.7 million
compared to $27.4 million in 1999, an
increase of 19 percent. These compar-
isons, and all of the other full year com-
parisons in this letter, exclude the effects
of $0.4 million and $0.6 million after-tax
restructuring credits taken in the second
quarters of 2000 and 1999, respectively.
The 2000 results include a full year
of sales for Medix, which was acquired
in late July 1999. Excluding the sales
generated by Medix, sales growth was
6 percent for the year.

CostTrack is our activity-based man-
agement system that employs a rational

pricing matrix that rewards mutual
process improvement. In 2000,
22 percent of our sales were on the
CostTrack matrix, up 67 percent from

and Friends,

last year. We also grew our PANDAC®
wound closure sales by 28 percent,
leveraged by our recently formed
medical specialties sales team. This
team concentrates specifically on the
operating room and clinical areas of
the hospital.

Gross margin for the year was
10.7 percent of net sales, unchanged
from 1999. SG&A expenses were
7.7 percent of net sales compared to
7.8 percent in 1999 as the company
continues to spread costs over a
larger revenue base. Operating margin
was 2.4 percent of sales compared
to 2.3 percent last year. Return on
common equity was 16.5 percent,
compared to 16.0 percent last year.
As a result of strong cash flow

for the year, debt decreased by
$47.3 million. The company’s debt
to capitalization ratio decreased to
40.4 percent at year-end, down sub-
stantially from 47.2 percent at the
end of 1999. The company’s focus on
balance sheet improvement produced
positive results for the year. Days
sales outstanding dropped 1.6 days
to 33.3 days in 2000 and inventory
turns increased to 9.5 turns, up from
9.2 in 1999. Capital expenditures
for 2000 were $19.6 million, largely
focused on technology initiatives.

Behind the Numbers
Our business plan for 2000 called for
us to return to a growth track by raising
our top line revenue growth with good
solid account penetration, by using our
industry leading technology to attract
new customers, and by enticing direct
selling manufacturers to use our effi-
cient distribution network. We set out
to improve our operating productivity
throughout the company. Strengthening
our balance sheet was another high
priority for 2000. We accomplished all
of these things.

where we would provide outsourced logis-
tics services for the direct selling units of
their business. We signed logistics agree-
ments with Mead Johnson NutritionalsTM
and American Health Products Corporation,
a manufacturer of a wide variety of med-
ical gloves. These projects are in various
stages of implementation and should all
be operational by the end of 2001.

During the year, we won acclaim
for the development and use of leading-
edge technology. Owens & Minor was
ranked 15th in InformationWeek maga-
zine’s annual survey of the most

Owens& Minor was ranked 15th in InformationWeek
magazine’s annual survey of the most innovative
users of information technology in the country, and
number one among healthcare companies.

Our overall sales growth was
fueled by strong improvement among
our three major customer groups:
Novation, Premier, Inc. and Broadlane
(formerly Tenet-BuyPower). During the
year we signed a distribution agree-
ment with the Marketplace@Novation,
becoming the first national distributor
to join this online e-commerce venture.
We also signed a strategic data shar-
ing agreement with Premier allowing
access to WISDOM, our industry-lead-
ing Internet-based decision support
tool. We continued to strengthen our
partnership and grow our business
with Broadlane.

In mid-year we announced our
intentions to provide enhanced supply
chain services for three different manu-
facturers. The first was C.R. Bard, Inc.

innovative users of information tech-
nology in the country, and number one
among healthcare companies. Our busi-
ness relationship with our technology
partner, Perot Systems Corporation,
continues to work very well by adding
fuel to our technology initiatives.

Productivity measures are an indica-

tion of how well we run our business in
the trenches. Boring stuff? Nosireebob!
Distribution is a pennies business,
and improving productivity is bread and
butter to everything we do. We measure
most everything, especially in the ware-
house. We collect buckets of data and
analyze our business from every angle.
This has helped us understand how
we fare in good times or bad. Let’s talk
about how we have improved our pro-
ductivity since 1998.

We are in the business of creating and distributing
value. We did an outstanding job of doing just that
in 2000. Shareholders received a 98.5% increase
in share price and a stronger balance sheet.

In our business, everything starts
with a line ordered. Since 1998, we
have increased sales by 13 percent,
and gross margin by 12 percent. Also,
we have increased warehouse lines
processed by 12 percent. During this
two year period, we held constant the
number of hours worked by our team-
mates. This resulted in productivity
gains as follows: sales per full time
equivalent teammate (FTE) increased
by 13 percent and gross margin per
FTE grew by 12 percent. New internal
warehouse technology contributed to
this excellent gain in productivity.

Our success shows that the technology we
have invested in is working and is making
a difference for us and our customers.

Productivity improvement is the
fundamental measure of success in
our business. We do an excellent job
in this area. Complemented by our
technology investment, we expect to
continue to improve.

Comings and Goings
During the fourth quarter, David R.
Guzmán joined the company as corpo-
rate senior vice president and chief
information officer. He comes to us
from Office Depot where he served as
senior vice president, systems develop-
ment. As CIO, David has taken on
responsibility for all of Owens & Minor’s
industry leading technology initiatives
and will oversee the technology out-
sourcing relationship with Perot Systems.

A. Marshall Acuff, Jr. was elected
to our board in December. He is senior
vice president and managing director
of Salomon Smith Barney, Inc. respon-
sible for equity strategy as a member
of the firm’s investment committee.
Marshall brings to us a wealth of expe-
rience in the financial markets and will
be a great benefit to the company and
our shareholders.

At the annual shareholder’s meet-

ing in April, E. Morgan Massey will retire
as a director. Morgan has served the
company for the past thirteen years and
has made a significant contribution.
During these thirteen years, he has
served on every board committee and
currently chairs the strategic planning
committee of the board. Morgan has
helped guide us through some tremen-
dous growth and a few bumps along the
way. His progressive, aggressive and
analytical mind has been a great source
of strength. Thank you, Morgan, for a
job well done. We will miss you.

The Year Ahead
Let us lay out for you in simple terms
what we will all work very diligently to
achieve in 2001. We anticipate sales
growth in the 8 to 10 percent range. We
anticipate the gross margin will remain
in the same percent range as reported
in 2000. We anticipate that SG&A
expense as a percent to sales will con-
tinue its downward trend. We anticipate
continuing to invest in technology to
maintain our leadership position in our
industry, and we anticipate growing
our earnings per share in the range of

11 to 14 percent. We are off to a
good start with the recent signing
of a five-year distribution agreement
with the Baylor Health Care System
in Dallas, Texas. Over the life of the
contract, this represents the potential
for $150 million in new sales volume
for Owens & Minor. Overall, we expect
another excellent year in 2001.

And Beyond
Distribution has been our business for
119 years. We are very good at it. We
want to become the master distributor
for healthcare, which means being
the most trusted and reliable partner
to our customers and suppliers for
all distribution services. We want to
remain the best service company in
the industry; the most innovative
when it comes to providing
technology solutions; the most
respected and trusted partner
in the supply chain. By doing
these things we will grow our
business profitably, we will help
our customers and suppliers
reduce supply chain costs, and
we will become indispensable
as a focused technology-driven
partner. We see growth coming in
healthcare with the baby boomers,
and we plan to be a part of it.

Building on Strength
We are a determined lot. There
is a great deal of bulldog tenacity
and competitive spirit within our
organization. Both of us spend a
great deal of our time on the road
visiting with our teammates and

our customers and suppliers. We listen
carefully to their concerns and their
ideas. We take their praise and cele-
brate, but only for a New York second,
because there is no room or time for
resting on our laurels. We work on
the feedback we get and we take the
enthusiasm and goodwill, pass it on,
and build upon it.

We have much to do in an industry

that is beginning to turn around in a
positive way. The hospital industry has
toughened up, cut costs and, so far,
has been able to maintain the quality

of care. Our strategy fits right into the
needs of our customers and suppliers.
Our investments in technology have
helped us be more productive internally,
to provide information and management
tools to our customers, and together
we have been able to take costs out
of the supply chain through process
improvement. We plan to leverage exist-
ing assets such as our technology plat-
forms, supply chain systems and skilled
logistics expertise in the pursuit of new
business as a logistics provider for our
manufacturer partners. The strength of
our company continues to be our peo-
ple, our technology, our service and our
focus on distribution. Our success this
year is traceable to our industry leader-

ship in all these areas.

Thanks
Now it is time to thank those
who helped make our year so
successful. To our teammates,
we are grateful for your spirit,
your tenacity and above all else,
your commitment to customer
service; to our suppliers, we
thank you for being there again
and again to partner with us in
such a positive way; to our cus-
tomers, we thank you for the
opportunity to serve you and to
be a part of your team; and to our
shareholders, we thank you for
your loyalty and patience, as it
paid off in 2000.

We believe the best is yet

to come.

Warm regards,

G. Gilmer Minor, III
Chairman and Chief Executive Officer

Craig R. Smith
President and Chief Operating Officer

Owens & Minor, a company
that has been delivering the
difference with customers,
teammates and shareholders
for more than a century, is
the nation’s leading distrib-
utor of national name brand
medical/surgical supplies.
The company blends supply
chain expertise, skilled
teammates and technology
to serve customers and
build shareholder value.

‘00

March 21, 2000
Owens & Minor signs
five-year contract
with Palmetto Health
Alliance worth a
potential $100 mil-
lion in sales volume.

‘00

June 8, 2000
Owens & Minor and Mead
Johnson Nutritionals™
announce an agreement
that will make Owens &
Minor a logistics provider
for Mead Johnson institu-
tional products in the
United States.

May 22, 2000
Owens & Minor
announces intention
to design and provide
enhanced supply
chain services for
C.R. Bard, Inc., a
developer, manufac-
turer and marketer
of healthcare prod-
ucts and services.

2000Delivering the Difference

Owens & Minor purchases medical/

surgical supplies. O&M purchases

medical/surgical supplies in great volume.

This allows the company to streamline

delivery and collect purchasing data

for customers.

Owens & Minor warehouses supplies in

facilities around the nation. O&M has

facilities around the nation, allowing it

to store medical/surgical supplies close

to customers. With years of experience

in supply chain management, O&M

has developed tools that streamline

warehousing, such as CSW (client server

warehousing), which improves receiving

and delivery processes.

Owens & Minor holds the inventory.

After purchasing inventory, O&M holds

it for customers. Using the latest in

supply chain processes, O&M delivers

and invoices goods only when cus-

tomers are ready. Customers reduce

their costs by using “just-in-time” and

stockless services, receiving supplies

at exactly the right time.

Owens & Minor reduces inventory costs.

O&M uses its expertise in warehousing

to reduce costs for customers. In many

cases, O&M handles warehousing for

customers. Alternatively, O&M employs

a “just-in-time” delivery system that

eliminates the cost of storage.

‘00

August 23, 2000
Owens & Minor signs
strategic data shar-
ing agreement with
Premier, Inc., allowing
access to WISDOM,
Owens & Minor’s
Internet-based deci-
sion support tool.

‘01

January 30, 2001
Owens & Minor reports
sales for 2000 were a
record $3.5 billion, up
10 percent over 1999.
Earnings per diluted
common share were
$0.93 before restruc-
turing, up 16 percent
from 1999.

‘00

September 15, 2000
Owens & Minor is
ranked 1st among
healthcare companies
and 15 th overall in
InformationWeek mag-
azine’s annual survey
of the most innovative
users of information
technology.

‘00

July 11, 2000
Owens & Minor signs
logistics agreement
with American Health
Products Corporation,
a manufacturer of med-
ical gloves, to provide
warehousing, distribu-
tion and e-commerce
development services
in the United States.

Owens & Minor uses technology to customize

information services. O&M collects informa-

tion about purchasing and inventory for its

customers. With this data, the company

is able to help customers maintain contract

compliance and increase savings. O&M

developed an Internet-based tool called

WISDOM to give customers access to this

valuable purchasing information.

Owens & Minor delivers supplies. O&M

warehouse facilities are located through-

out the United States close to customer

facilities. O&M uses its own drivers,

who serve as an essential component

of customer service.

Owens & Minor adds value to inventory.

O&M customizes pallets and truck loads

according to customer need, thus reducing

labor on the receiving end. O&M is also

able to adjust delivery times to customer

needs, so that it delivers only when

customers are ready, allowing them to

streamline receiving activities.

Owens & Minor invoices and collects for

supplies. O&M uses electronic billing and

funds transfer, thus reducing costs for the

company and for customers. O&M is also

able to customize terms to suit the needs of

individual customers. Many customers are

members of group purchasing organizations

or large hospital systems and thus are able

to take advantage of favorable pricing.

More than 4,000 customers,

including acute-care hospitals, major
healthcare buying groups, and facilities
such as surgery centers, depend every day
on Owens & Minor’s supply chain expertise.
Delivering critical medical/surgical supplies
to the right place, at the right time, at
a reasonable cost is the core business
of Owens & Minor and the driving force
behind sales and earnings growth.

Beyond distribution, Owens & Minor,

the leader in healthcare technology, offers
integrated solutions to its supply chain
partners. These solutions include CostTrack,
Owens & Minor’s industry-leading, activity-
based management process.

Owens & Minor also created WISDOM,

an award-winning, Internet-based data
mining tool that gives subscribers access
to their own purchasing information. To
help customers in the operating room,
Owens & Minor created PANDAC®, a wound
closure asset management program. And,
the company created OM Direct, an online
catalogue and ordering system, now
handling over $140 million in annualized
sales, streamlining ordering for customers.

At Owens & Minor, delivering the differ-
ence with customers means responding to
their needs with products and services that
lower cost and increase efficiency. This cus-
tomer service, a defining quality of Owens &
Minor’s culture, is supported by a history
of integrity and operational excellence.

Delivering the Difference

with

“Working with Owens &

Minor is the rare instance

where customer and distrib-

utor truly act as partners.

The prices, orders, invoices,

inventory and deliveries

are always accurate and

on time. They work with us

to optimize our operations.

Owens & Minor makes

the supply chain hum

through skill, integrity

and warmth.”

Robert J. Pallari
President and CEO
Legacy Health System
Portland, Oregon

G E T T I N G T H E F A C T S

Eleven of the nation’s top fifteen hospitals
in the annual “Best Hospitals Honor Roll,”
published by US News & World Report,
are Owens & Minor customers.

Owens & Minor reported $3.5 billion in
sales in 2000, a record for the company.

Owens & Minor works with 1,700 manufac-
turers to offer more than 170,000 products

to its customers.

Owens & Minor’s PANDAC®
sales grew 28% in 2000.

Customers

Rodney Thomas, Area Manager of Logistics Solutions
Joe Rosato, Area Director of Operations
Mike Nugent, Area Vice President
Northeast Area

G E T T I N G T H E F A C T S

The company’s earnings per diluted common
share before restructuring grew 16 percent
to $0.93 in 2000.

In Owens & Minor’s annual independent
survey, 96.5% of customers were satisfied
with the company’s ability to “consistently
meet needs and expectations.”

Owens & Minor serves 4,000 customers
with approximately 2,800 teammates
across the country.

Using its 45 distribution centers
throughout the nation, Owens
& Minor teammates maintain
close ties to customers.

Delivering the

Marci Miller
Director & Assistant Controller
Financial Reporting
Home Office

wens & Minor knows that its success

depends on the well-being of its employ-
ees, known at the company as teammates.
Throughout the company, each teammate
is actively engaged in the support and
perpetuation of a culture of excellence.
At Owens & Minor, teammates work

together to make sure that customers
are consistently satisfied. In its annual
independent customer satisfaction survey,
Owens & Minor found that 96.5% of
customers were satisfied with the com-
pany’s ability to “consistently meet
needs and expectations.”

Because the success of each
Owens & Minor teammate has a direct
bearing on the success of the company,
the culture at Owens & Minor focuses on
empowering, training and cultivating the
best team in the industry. Incentives,
reinforcement and recognition play a key
role in this drive to maintain a quality team.
Owens & Minor also believes strongly
in supporting the communities it serves.
Teammates are encouraged to incorporate

community service into their lives. Every
year, Owens & Minor teammates across
the country actively volunteer in the work
of charitable organizations such as the
United Way, Meals on Wheels and the
Make-a-Wish Foundation.

Difference

with Teammates

“One of the great things about

Owens & Minor is that every-

one is given the opportunity

to meet challenges and the

opportunity to make a differ-

ence. The company takes

good care of us, and, in turn,

we know that our perform-

ance makes a difference

with customers and with the

company’s financial results.”

Pauline Johnson
Office Manager
Minneapolis Distribution Center

wens & Minor recognizes that one
of its most important missions is delivering
shareholder value. With more than 100
years’ experience in healthcare, Owens &
Minor has a highly regarded expertise in
supply chain management. This expertise,
backed by the long-standing trust of
customers, the strength of manufacturer
relationships and a team of dedicated
professionals, allows the company to
maintain and build value for shareholders.
Throughout its history, Owens & Minor

has worked to build value for its share-
holders through sales and earnings growth,
fueled by development of specialized tools
that help streamline the supply chain.
As it looked toward the future,
Owens & Minor recognized it could leverage
existing assets such as distribution centers,
technology and skilled logistics experts
by expanding its services within the supply
chain. In 2000, Owens & Minor opened
the door to logistics partnerships with
manufacturers, tapping a new vein of busi-
ness for the company.

The value embedded in Owens & Minor

is the sum of long-standing customer
relationships, strong sales and earnings
growth, dedicated teammates and the
ability to look ahead at a changing market-
place. These factors form the foundation
of the value of Owens & Minor.

Delivering the Difference

with

“The strength of our com-

pany continues to be our

technology, our service,

our focus on distribution

and our people. We look

ahead at what our supply

chain partners will need

to be successful. After lis-

tening to them, we apply

common sense solutions

to complex issues to get

the desired result. We are

delivering the difference,

every day.”

G. Gilmer Minor, III
Chairman &
Chief Executive Officer
Owens & Minor

G E T T I N G T H E F A C T S

The company has operated successfully
as a leader in the healthcare industry
since 1882.

During 2000, the value of Owens & Minor
common stock grew 98.5%.

Owens & Minor holds a 28% share of the
acute care distribution marketplace, and
is the leading distributor of national name
brand medical/surgical supplies.

Owens & Minor was ranked 1st among
healthcare companies and 15 th overall
in InformationWeek’s 2000 survey of
the nation’s most innovative users of
information technology.

Shareholders

José Valderas
Vice President, eMedExpress-Logistics
Home Office

Board Of Directors

From left to right: Peter Redding, Marshall Acuff, James Ukrop, James Farinholt, John Crotty, Morgan Massey,
Gilmer Minor, Anne Marie Whittemore, Henry Berling, Vernard Henley, James Rogers, Josiah Bunting

A. Marshall Acuff, Jr. (61)2
Senior Vice President
and Managing Director,
Salomon Smith Barney, Inc.

Henry A. Berling (58)1,4
Executive Vice President,
Partnership Development,
Owens & Minor, Inc.

Josiah Bunting, III (60) 2,4,5
Superintendent,
Virginia Military Institute

John T. Crotty (63) 2,3,4
Managing Partner,
CroBern Management Partnership
President, CroBern, Inc.

James B. Farinholt, Jr. (66) 1,2*,4
Special Assistant to the President
for Economic Development,
Virginia Commonwealth University

Vernard W. Henley (71) 2,3,5
Chairman & CEO,
Consolidated Bank & Trust Company

E. Morgan Massey (74) 1,4*,5
Chairman,
Asian-American Coal, Inc.
Chairman Emeritus,
A.T. Massey Coal Company, Inc.
Chairman, Evan Energy Company

G. Gilmer Minor, III (60) 1*,4
Chairman & CEO,
Owens & Minor, Inc.

Peter S. Redding (62) 2,3,4
Retired President & CEO,
Standard Register Company

James E. Rogers (55) 1,3*,4
President,
SCI Investors Inc.

James E. Ukrop (63) 2,3,5
Chairman,
Ukrop’s Super Markets, Inc.
Chairman, First Market Bank

Anne Marie Whittemore (55) 1,3,5*
Partner,
McGuireWoods LLP

Board Committees: 1Executive Committee,
2Audit Committee, 3Compensation & Benefits
Committee, 4Strategic Planning Committee,
5Governance & Nominating Committee,
*Denotes Chairperson

CorporateOfficers

G. Gilmer Minor, III (60)
Chairman & Chief Executive Officer

Chairman of the Board since 1994
and Chief Executive Officer since 1984.
Mr. Minor was President from 1981 to
April 1999. Mr. Minor joined the company
in 1963.

Craig R. Smith (49)
President & Chief Operating Officer

President since 1999 and Chief Operating
Officer since 1995. Mr. Smith has been
with the company since 1989.

Henry A. Berling (58)
Executive Vice President, Partnership
Development

Executive Vice President, Partnership
Development since 1995. Mr. Berling
was Executive Vice President, Partnership
Development and Chief Sales Officer from
1996 to 1998. Mr. Berling has been with
the company since 1966.

Timothy J. Callahan (49)
Senior Vice President, Distribution

Senior Vice President, Distribution since
1999. From 1997 to 1999, Mr. Callahan
served as Regional Vice President, West.
Mr. Callahan was Executive Vice President
for NCI, a healthcare consulting company
from 1996 to 1997. Prior to that, he was
Vice President, Sales for Sterile Concepts,
Inc. from 1990 to 1996.

Drew St. J. Carneal (62)
Senior Vice President, General
Counsel & Secretary

Senior Vice President, General Counsel
and Secretary since 1990. Mr. Carneal
has been with the company since 1989.

Jack M. Clark, Jr. (50)
Senior Vice President, Sales & Marketing

Senior Vice President, Sales & Marketing
since 1997. Mr. Clark was employed by
Campbell Soup Company from 1996 to
1997, serving as Vice President, U.S.
Sales and Marketing. From 1987 to 1996,
he was employed by Coca-Cola USA where
his last position was Area Vice President.

Charles C. Colpo (43)
Senior Vice President, Operations

Senior Vice President, Operations since
1999. From 1998 to 1999, Mr. Colpo
was Vice President, Operations. Prior
to 1998, Mr. Colpo was Vice President,
Supply Chain Process from 1996 to 1998
and Vice President, Inventory Management
from 1995 to 1996. Mr. Colpo has been
with the company since 1981.

James L. Grigg (53)
Senior Vice President, Supply
Chain Management

Senior Vice President, Supply Chain
Management since 1996. Mr. Grigg
joined the company in 1996 as Senior
Vice President, Product. Mr. Grigg was
Vice President, Trade Relations and
Product Management for FoxMeyer
Health Corp. from 1992 to 1996.

David R. Guzmán (45)
Senior Vice President & Chief
Information Officer

Senior Vice President and Chief Information
Officer since December 2000. Mr. Guzmán
was employed by Office Depot from 1999
to 2000 serving as Senior Vice President,
Systems Development. From 1997 to
1998, he was employed by ALCOA as
Chief Architect, Managing Director, Global
Information Services. From 1996 to 1997,
Mr. Guzmán served as Chief Technology
Officer, Divisional Vice President for KMart,
and from 1994 to 1996, he was employed
by Federated Department Stores as
Director of Architecture.

Richard F. Bozard (53)
Vice President, Treasurer & Acting Chief
Financial Officer

Acting Chief Financial Officer since 1999
and Vice President and Treasurer since
1991. Mr. Bozard has been with the
company since 1988.

Olwen B. Cape (51)
Vice President, Controller

Vice President and Controller since 1997.
Ms. Cape was employed by Bausch &
Lomb Incorporated from 1990 to 1997
serving in various financial positions,
including Director, Business Analysis
& Planning.

Erika T. Davis (37)
Vice President, Human Resources

Vice President, Human Resources since
1999. Prior to that, Ms. Davis served as
Director, Human Resources & Training in
1999 and Director, Compensation & HRIS
from 1995 to 1999. Ms. Davis has been
with the company since 1993.

Hugh F. Gouldthorpe, Jr. (61)
Vice President, Quality & Communications

Vice President, Quality and Communications
since 1993. Mr. Gouldthorpe has been
with the company since 1986.

Hue Thomas, III (61)
Vice President, Corporate Relations

Vice President, Corporate Relations since
1991. Mr. Thomas has been with the
company since 1970.

Numbers inside parentheses indicate age.

DistributionNetwork

Seattle

Portland

San Francisco

Salt Lake City

Des Moines

Chicago

Detroit

Greensburg

Allentown

Minneapolis

Rochester

Green Bay

Waunakee

Boston

Omaha

Springfield

Indianapolis

Denver

Kansas City

Cincinnati

Bridgeton

Savage
Richmond, Home Office
Richmond

Los Angeles

San Diego

St. Louis

Tulsa

Phoenix

Oklahoma City

Memphis

LaFollette

Knoxville

Raleigh

Charlotte

Columbia

Atlanta

Birmingham

Augusta

Jackson

New Orleans

Dallas

Houston

Harlingen

Jacksonville

Orlando

Ft. Lauderdale

O&M Medical/Surgical Distribution Center

O&M Home Office

O&M Specialty Distribution

✪
✪
2000Financials

C O N T E N T S

Selected Financial Data

Business Description

Analysis of Operations

Consolidated Statements of Income

Consolidated Balance Sheets

Consolidated Statements
of Cash Flows

Consolidated Statements of
Changes in Shareholders’ Equity

Notes to Consolidated
Financial Statements

Independent Auditors’ Report

Report of Management

Quarterly Financial Information

Form 10-K Annual Report

Corporate Information

S E L E C T E D

F I N A N C I A L

D A T A (1)

Owens & Minor, Inc. and Subsidiaries

(in thousands, except ratios and per share data)

Summary of Operations:
Net sales(2)
Nonrecurring restructuring expense (credit)(3)
Net income(3)

Per Common Share:
Net income – basic
Net income – diluted
Average number of shares

outstanding – basic

Average number of shares
outstanding – diluted

Cash dividends
Stock price at year end
Book value

Summary of Financial Position:
Working capital
Total assets
Long-term debt
Mandatorily redeemable preferred securities
Shareholders’ equity

Selected Ratios:
Gross margin as a percent of net sales(2)
Selling, general and administrative expenses

as a percent of net sales(2)

Average receivable days sales outstanding(2)(4)
Average inventory turnover
Return on average total equity(5)
Return on average total equity(6)
Current ratio
Capitalization ratio(4)(5)
Capitalization ratio(4)(6)

2000

1999

1998

1997

1996

$3,503,583

$3,194,134

$3,090,048

$3,124,062

$3,025,341

(750)

33,088

1.01

0.94

32,712

39,453

0.2475

17.75

6.41

(1,000)

27,979

0.86

0.82

32,574

39,098

0.23

8.94

5.58

11,200

20,145

0.56

32,488

32,591

0.20

15.75

4.94

–

24,320

0.60

32,048

32,129

0.18

14.50

4.48

–

12,965

0.25

31,707

31,809

0.18

10.25

3.99

$ 233,637

$ 219,448

$ 235,247

$ 233,789

$ 192,990

$ 867,548

$ 865,000

$ 717,768

$ 712,563

$ 679,501

$ 152,872

$ 174,553

$ 150,000

$ 182,550

$ 167,549

$ 132,000

–

$ 212,772

$ 182,381

$ 161,126

$ 259,301

$ 242,400

10.7%

10.8%

10.4%

10.1%

7.7%

33.3

9.5

11.2%

16.7%

1.6

40.4%

63.2%

7.8%

34.9

9.2

10.5%

16.3%

1.6

47.2%

69.4%

8.0%

33.5

9.8

8.2%

9.6%

1.9

43.4%

68.9%

7.8%

32.4

9.9

9.7%

1.9

53.0%

7.9%

37.3

8.9

5.4%

1.7

54.8%

(1) On July 30, 1999, the company acquired certain net assets of Medix, Inc. This acquisition was accounted for as a purchase.
(2) Net sales, gross margin, SG&A expenses and all related ratios have been restated for all periods in accordance with Emerging Issues Task Force

Issue 00-10, Accounting for Shipping and Handling Fees and Costs. See Note 1 to the Consolidated Financial Statements.

(3) In 1998, the company incurred $11.2 million, or $6.6 million after taxes, of nonrecurring restructuring expenses. In 2000 and 1999, the

company reduced the restructuring accrual by $0.8 million and $1.0 million, or $0.4 million and $0.6 million after taxes. See Note 3 to the
Consolidated Financial Statements.

(4) Excludes the impact of the company’s off balance sheet receivables ﬁnancing facility. See Note 8 to the Consolidated Financial Statements.
(5) Includes mandatorily redeemable preferred securities as equity.
(6) Includes mandatorily redeemable preferred securities as debt.

B U S I N E S S D E S C R I P T I O N

Owens & Minor, Inc. and Subsidiaries

Company History

Customers

Owens and Minor, Inc. and subsidiaries (O&M or the company)
is the leading distributor of national name brand medical and
surgical supplies in the United States. The company was incor-
porated in Virginia on December 7, 1926, as a successor to a
partnership founded in Richmond, Virginia in 1882.

O&M has significantly expanded and strengthened its
national presence in recent years through internal growth
and acquisitions. In July 1999, the company acquired certain
net assets of Medix, Inc. (Medix), a distributor of medical and
surgical supplies whose customers are primarily located in the
Midwest, strengthening the company’s presence in this part of
the country.

Industry Overview

Distributors of medical and surgical supplies provide a wide
variety of products and services to healthcare providers,
including hospitals and hospital-based systems, integrated
healthcare networks (IHNs) and alternate care providers. The
medical/surgical supply distribution industry has experienced
growth in recent years due to the aging population and emerging
medical technology resulting in new healthcare procedures and
products. Over the years, IHNs have continued to change and
model their health systems to meet the needs of the markets
they serve. They have forged partnerships with national medical
and surgical supply distributors to meet the challenges of man-
aging the supply procurement and distribution needs of their
entire network. The traditional role of a distributor in ware-
housing and delivering medical and surgical supplies to a
customer has evolved into the role of assisting customers to
manage the entire supply chain. Advances in information tech-
nology have enabled Owens & Minor to assist IHNs in the
management of product standardization initiatives, paving the
way for electronic commerce to play an increasingly important
role in supply chain management. O&M expects that further
consolidation in the medical/surgical supply distribution industry
will continue due to the competitive advantages enjoyed by
larger distributors, which include, among other things, the ability to
serve nationwide customers, buy inventory in large volume and
develop e-commerce platforms and decision support systems.

O&M distributes over 170,000 finished medical and surgical
products produced by approximately 1,700 suppliers to approxi-
mately 4,000 customers nationwide. The company’s customers
are primarily acute care hospitals and hospital-based systems,
which account for more than 90% of O&M’s net sales. Other
customers include alternate care facilities such as nursing
homes, clinics, surgery centers, rehabilitation facilities, physicians’
offices and home healthcare organizations. The company
provides distribution services under contractual agreements
with a number of large healthcare networks as well as major
buying groups that represent independently owned member
hospitals. Most of O&M’s sales consist of disposable gloves,
dressings, endoscopic products, intravenous products, needles
and syringes, sterile procedure trays, surgical products and
gowns, urological products and wound closure products.

Recently, the company has begun to provide distribution
services for manufacturers, helping them to implement logistics
and e-commerce solutions. The form of these arrangements
varies, as Owens & Minor seeks to provide customized
services to meet the needs of its manufacturing partners.
In 2000, the company announced agreements with several
manufacturers, including C. R. Bard Inc., Mead Johnson
Nutritionals™ and American Health Products Corporation.

National Healthcare Networks (Networks) and Group
Purchasing Organizations (GPOs). Networks and GPOs
are entities that act on behalf of a group of healthcare providers
to obtain pricing and other benefits that may be unavailable to
individual members. Hospitals, physicians and other types of
healthcare providers have joined Networks and GPOs to take
advantage of improved economies of scale and to obtain services
from medical and surgical supply distributors ranging from
discounted product pricing to logistical and clinical support.
Networks and GPOs negotiate directly with medical and surgical
product suppliers and distributors on behalf of their members,
establishing exclusive or multi-supplier relationships. Networks
and GPOs cannot ensure that members will purchase their
supplies from a given distributor. O&M is a distributor for
Novation, an organization that manages purchasing for more
than 5,000 healthcare organizations. Novation was created in
1998 to serve member organizations of VHA, which O&M has
served since 1985, and University HealthSystem Consortium
(UHC), an alliance of academic health centers. Sales to
Novation members represented approximately 51% of O&M’s
net sales in 2000.

B U S I N E S S D E S C R I P T I O N ( c o n t i n u e d )

In October 1998, O&M entered into an exclusive, eight-year

medical/surgical supply distribution agreement with Tenet
Healthcare Corporation (Tenet), the second largest for-profit
hospital chain in the nation. In addition to being a sole supplier
to Tenet’s approximately 110 acute care hospitals, O&M provides
distribution services to Broadlane, Tenet’s GPO. One of the
nation’s leading GPOs, Broadlane provides national contracting
through its more than 500 acute care hospitals and more than
2,000 other healthcare facilities.

Integrated Healthcare Networks (IHNs). An IHN is typically
a network of different types of healthcare providers that seeks
to offer a broad spectrum of healthcare services and compre-
hensive geographic coverage to a particular local market. IHNs
have become increasingly important because of their expanding
role in healthcare delivery and cost containment and their
reliance upon the hospital, O&M’s traditional customer, as a
key component of their organizations. Individual healthcare
providers within a multiple-entity IHN may be able to contract
individually for distribution services; however, the providers’
shared economic interests create strong incentives for partici-
pation in distribution contracts established at the system level.
Because IHNs frequently rely on cost containment as a com-
petitive advantage, IHNs have become an important source of
demand for O&M’s enhanced inventory management and other
value-added services.

Individual Providers. In addition to contracting with
healthcare providers at the IHN level and through Networks
and GPOs, O&M contracts directly with individual healthcare
providers. In 2000, not-for-profit hospitals represented a majority
of these facilities.

Suppliers

O&M believes its size and longstanding relationships enable
it to obtain attractive terms and incentives from suppliers and
contribute to its gross margin. The company has well-established
relationships with virtually all major suppliers of medical and
surgical supplies, and has developed close working relation-
ships with its largest suppliers to create operating efficiencies
in the supply chain.

Owens & Minor, Inc. and Subsidiaries

Approximately 16%, 17% and 18% of O&M’s net sales in
2000, 1999 and 1998 were sales of Johnson & Johnson Hospital
Services, Inc. products. Approximately 15% of the company’s 2000
net sales and 12% of the company’s 1999 and 1998 net sales
were sales of products of the subsidiaries of Tyco International.

Distribution

O&M employs a decentralized approach to sales and customer
service through its 45 distribution centers, strategically located
to serve customers in 50 states and the District of Columbia.
These distribution centers generally serve hospitals and other
customers within a 100- to 150-mile radius. O&M delivers most
medical and surgical supplies with a fleet of leased trucks.
Contract carriers and parcel services are used to transport all
other medical and surgical supplies.

Competition

The medical/surgical supply distribution industry in the United
States is highly competitive and consists of three major nation-
wide distributors: O&M; Allegiance Corp., a subsidiary of
Cardinal Health, Inc.; and McKesson General Medical Corp.,
a subsidiary of McKesson HBOC, Inc. In 2000, Allegiance Corp.
acquired Bergen Brunswig Medical Corp., the medical and
surgical distribution division of Bergen Brunswig Corporation.
The industry also includes smaller national distributors of
medical and surgical supplies and a number of regional and
local distributors.

Competitive factors within the medical/surgical supply
distribution industry include total delivered product cost, product
availability, the ability to fill and invoice orders accurately, delivery
time, services provided, inventory management, information
technology, and the ability to meet special customer require-
ments. O&M believes its emphasis on technology combined
with its decentralized and customer-focused approach to
distribution of medical/surgical supplies enables it to compete
effectively with both larger and smaller distributors by being
located near the customer and offering a high level of customer
service. Further consolidation of medical/surgical supply distrib-
utors is expected to continue through the purchase of smaller
distributors by larger companies as a result of competitive
pressures in the marketplace.

S E L E C T E D F I N A N C I A L D A T A

Asset Management

O&M aims to provide the highest quality of service in the
medical/surgical supply distribution industry by focusing on
providing suppliers and customers with local sales and service
support and the most responsive, efficient and cost-effective
distribution of medical and surgical products. The company
draws on technology to provide a broad range of value-added
services to control inventory and accounts receivable.

Inventory. Due to O&M’s significant investment in inventory
to meet the rapid delivery requirements of its customers, efficient
asset management is essential to the company’s profitability.
The significant and ongoing emphasis on cost control in the
healthcare industry puts pressure on distributors and health-
care providers to create more efficient inventory management
systems. O&M has responded to these ongoing challenges by
developing its inventory forecasting capabilities, client/server
warehouse management system, product standardization and
consolidation initiative, and vendor managed inventory process
(VMI). VMI allows some of the company’s major suppliers to
monitor daily sales and inventory levels electronically so they
can automatically and accurately replenish O&M’s inventory.
These and other services have enabled the company to grow
sales without significantly increasing inventory levels.

Accounts Receivable. The company’s credit practices are
consistent with those of other medical/surgical supply
distributors. O&M actively manages its accounts receivable
to minimize credit risk and does not believe that credit risk
associated with accounts receivable poses a significant risk
to its results of operations.

Information Technology

In 1998, O&M signed a 10-year agreement with Perot Systems
Corporation to outsource its information technology (IT) opera-
tions and to procure strategic application development services.
This partnership has allowed the company to provide additional
resources to major IT initiatives to support internal operations
and to enhance services to the company’s customers and
suppliers. In 2000, O&M’s capital expenditures included approxi-
mately $16.8 million for computer hardware and software.
O&M has focused its technology expenditures on electronic
commerce, data warehouse/decision support, supply chain
management/warehousing systems, sales and marketing
programs and services, and infrastructure enhancements.

Owens & Minor, Inc. and Subsidiaries

Electronic Commerce. Owens & Minor is an industry leader
in the use of electronic commerce to exchange business trans-
actions with trading partners. In 1999, the company introduced
OM Direct, an Internet-based product catalog and direct ordering
system, to supplement existing electronic data interchange
(EDI) technologies.

The company also provides distribution services for several

Internet-based medical/surgical supply companies. O&M is
committed to ongoing investment in an open, Internet-based
e-commerce platform to support the company’s supply chain
management initiatives and to enable expansion into new
market segments for healthcare products. The company is com-
mitted to supporting e-commerce initiatives throughout the
industry, including Marketplace@Novation, Medibuy, Broadlane,
the Global Healthcare Exchange and others. The company
expects to serve as an integration point for customers, both
healthcare providers and suppliers.

Sales and Marketing

O&M’s sales and marketing function is organized to support its
decentralized field sales teams of approximately 230 people.
Based from the company’s distribution centers nationwide, the
company’s local sales teams are positioned to respond to cus-
tomer needs quickly and efficiently. In addition, Owens & Minor
has introduced a field organization focused on assisting cus-
tomers in the clinical environment, specializing in a knowledge
of surgical products and technology. The company’s integrated
sales and marketing strategy offers customers value-added
services in logistics, information management, asset manage-
ment and product mix management. O&M provides special
training and support tools to its sales team to help promote
these programs and services.

O&M’s value-added programs and services for its trading

partners include the following:

• CostTrack: This industry-leading activity-based manage-
ment program helps customers identify and track the
cost-drivers in their distribution activities, giving them
the information they need to drive workflow efficiencies,
raise employee productivity and cut costs. With CostTrack,
the pricing of services provided to customers is no
longer based on a cost-plus model, but on the variety
of the Owens & Minor services that they choose. In
2000, over 20% of the company’s net sales were generated
through the CostTrack program.

B U S I N E S S D E S C R I P T I O N ( c o n t i n u e d )

• WISDOM: This award-winning Internet-accessed deci-
sion support tool connects O&M’s customers, suppliers
and GPOs to its data warehouse. Password-protected,
WISDOM offers customers online access to a wide
variety of reports about their purchase history, contract
compliance, product usage and other related data. This
timely information helps customers make well-informed
purchasing decisions and realize hard-dollar savings and
operating efficiencies by standardizing their product
lines and consolidating suppliers, increasing contract
compliance and GPO-related revenues, and consolidating
purchasing data among the various computer systems
in a healthcare network. Over 90 healthcare systems
currently subscribe to WISDOM.

• PANDAC® Wound Closure Management Program:
This information-based program provides customers an
evaluation of their current and historical wound closure
inventories and usage levels, helping them reduce their
investment in suture and endomechanical equipment
and control their costs per operative case. O&M guaran-
tees customers a minimum five percent savings in total
wound closure inventory expenditures during their first
year on the program.

• Focus On Consolidation, Utilization &

Standardization (FOCUS): This partnership program
drives product standardization and consolidation,
increasing the volume of purchases from O&M’s most
efficient suppliers, which provides operational benefits
and cost savings to healthcare customers. FOCUS centers
around both commodity and preference product stan-
dardization. O&M requires its FOCUS partners to be
market share leaders and to meet strict certification
standards, such as exceeding minimum fill rates, offering
a flexible returned goods policy and using EDI.

Owens & Minor, Inc. and Subsidiaries

Other Matters

Regulation. The medical/surgical supply distribution industry
is subject to regulation by federal, state and local government
agencies. Each of O&M’s distribution centers is licensed to
distribute medical and surgical supplies as well as certain
pharmaceutical and related products. The company must comply
with regulations, including operating and security standards
for each of its distribution centers, of the Food and Drug
Administration, the Drug Enforcement Agency, the Occupational
Safety and Health Administration, state boards of pharmacy
and, in certain areas, state boards of health. O&M believes
it is in material compliance with all statutes and regulations
applicable to distributors of medical and surgical supply
products and pharmaceutical and related products, as well as
other general employee health and safety laws and regulations.

Properties. O&M’s corporate headquarters are located in
western Henrico County, in a suburb of Richmond, Virginia,
in leased facilities. The company owns two undeveloped
parcels of land adjacent to its corporate headquarters. The
company leases offices and warehouses for its 45 distribution
centers across the United States. In the normal course of busi-
ness, the company regularly assesses its business needs and
makes changes to the capacity and location of its distribution
centers. The company believes that its facilities are adequate
to carry on its business as currently conducted. All of O&M’s
distribution centers are leased from unaffiliated third parties.
A number of leases are scheduled to terminate within the next
several years. The company believes that, if necessary, it could
find facilities to replace these leased premises without suffering
a material adverse effect on its business.

Employees. At the end of 2000, the company had 2,763 full
and part-time employees. Management believes that relations
with employees are good.

A N A L Y S I S O F O P E R A T I O N S

2000 Financial Results

In 2000, O&M earned net income of $33.1 million, or $0.94 per
diluted common share, compared with $28.0 million, or $0.82
per diluted common share, in 1999. Net income in 2000 and
1999 was increased by $0.4 million and $0.6 million after tax
reductions of a restructuring reserve originally established in
1998. The 1998 restructuring charge of $11.2 million (pretax)
reflected the company’s plan to downsize warehouse opera-
tions as a result of the cancellation of its contract with HCA –
The Healthcare Company (HCA). Excluding the reductions of
the restructuring reserve, net income for 2000 increased 19%
to $32.7 million, or $0.93 per diluted common share, from
$27.4 million, or $0.80 per diluted common share for 1999.

Results of Operations

The following table presents the company’s consolidated
statements of income on a percentage of net sales basis:

Year ended December 31,
Net sales
Cost of goods sold
Gross margin
Selling, general and

administrative expenses

Depreciation and amortization
Interest expense, net
Discount on accounts

receivable securitization

Distributions on mandatorily

redeemable preferred securities
Nonrecurring restructuring expenses
Total expenses
Income before income taxes
Income tax provision
Net income

2000
1998
1999
100.0% 100.0% 100.0%
89.3
10.7

89.3
10.7

89.2
10.8

7.7
0.6
0.3

0.2

0.2
–
9.0
1.7
0.8
0.9%

7.8
0.6
0.4

0.1

0.2
–
9.1
1.6
0.7
0.9%

8.0
0.6
0.5

0.1

0.1
0.4
9.7
1.1
0.4
0.7%

Acquisition. On July 30, 1999, the company acquired certain
net assets of Medix, Inc. (Medix), a distributor of medical/
surgical supplies, for approximately $83 million. The company
paid cash of approximately $68 million and assumed debt of
approximately $15 million, which was paid off as part of the
closing transaction. The excess of the purchase price over the
fair value of the identifiable net assets acquired of approxi-
mately $58 million has been recorded as goodwill and is
being amortized on a straight-line basis over 40 years. As the

Owens & Minor, Inc. and Subsidiaries

acquisition was accounted for as a purchase, the operating
results of Medix have been included in the company’s consoli-
dated financial statements since July 30, 1999. This acquisition
strengthens the company’s presence in the Midwest and pro-
vides opportunities for increased sales in this geographic area.
Medix’ net sales were approximately $184 million for its last
fiscal year, which ended October 2, 1998. The success of the
acquisition will depend in part on the company’s ability to
integrate and capture synergies in the combined businesses.

In connection with the acquisition, management adopted a

plan for integration of the businesses that includes closure of
some Medix facilities and consolidation of certain administrative
functions. An accrual of $2.7 million, included in the allocation
of the purchase price, was established to provide for certain
costs related to this plan. As of December 31, 2000, $1.1 million
had been spent, principally for lease payments on closed facili-
ties and employee separations. The integration of the Medix
business is expected to be completed in 2001.

Net sales. Net sales increased by 10% to $3.50 billion for 2000,
from $3.19 billion in 1999. Excluding the sales generated by
customers acquired through the Medix acquisition, net sales
increased 6%. Most of this increase resulted from higher sales
volumes due to increased penetration of existing accounts,
most significantly Broadlane (formerly Tenet-BuyPower), whose
distribution contract began in February 1999.

Net sales increased by 3% to $3.19 billion for 1999, from
$3.09 billion in 1998. Excluding the sales generated by the
Medix acquisition, net sales increased 1%. The increase in sales
was due to new customer contracts, primarily Broadlane, and
increased penetration of existing accounts, offset by the loss
of the HCA contract, which was cancelled in mid-1998.

Net Sales
(billions)

’00

’99

’98

’97

’96

$3.50

$3.19

$3.09

$3.12

$3.03

A N A L Y S I S O F O P E R A T I O N S ( c o n t i n u e d )

Gross margin. Gross margin as a percentage of net sales for
2000 remained unchanged from 1999 at 10.7%, and decreased
slightly from 10.8% in 1998. From 1999 to 2000, customer
margins decreased slightly due to changes in the company’s
customer mix, including lower contract margins on business
acquired from Medix. These decreases, however, were offset by
favorable vendor initiatives. The decrease from 1998 to 1999 was
a result of the benefits of certain supply chain initiatives being
recognized over a lower sales base in 1998. The company will
continue to pursue opportunities for margin improvement.

Gross Margin % vs. SG&A % of Net Sales
Gross Margin %

10.7%

2.2%

2.6%

2.8%

2.9%

3.0%

SG&A%

’96

’97

’98

’99

’00

7.7%

Selling, general and administrative expenses. Selling,
general and administrative (SG&A) expenses as a percentage
of net sales was 7.7% in 2000 compared with 7.8% in 1999 and
8.0% in 1998. The decreases from year to year as a percentage
of net sales were attributable to three major factors:

• economies of scale as a result of a higher sales base

without a significant increase in fixed costs

• operating efficiencies driven by improved

warehouse technology

• continued management of administrative costs, including

consolidation of certain administrative functions

Depreciation and amortization. Depreciation and amorti-
zation increased by 11% in 2000 to $21.5 million, compared
with $19.4 million in 1999 and $18.3 million in 1998. The
increases from year to year were due, in part, to goodwill
amortization of $1.4 million and $0.6 million in 2000 and 1999
resulting from the Medix acquisition. Excluding this amortization,
depreciation and amortization increased by 7% from 1999 to
2000 and by 3% from 1998 to 1999 as a result of higher capital
spending associated with information technology initiatives.
O&M anticipates similar increases in depreciation in 2001 as
the company continues to invest in information technology.

Owens & Minor, Inc. and Subsidiaries

Net interest expense and discount on accounts receiv-
able securitization (financing costs). Net financing costs
totaled $19.4 million in 2000, compared with $17.1 million in
1999 and $18.7 million in 1998. Net financing costs included
collections of customer finance charges of $5.3 million in 2000,
up from $4.6 million in 1999 and $3.0 million in 1998. Excluding
the collection of customer finance charges, financing costs
increased to $24.8 million in 2000 from $21.7 million in both
1999 and 1998. The increase in financing costs was due to a
combination of higher interest rates due to external market
forces and an increase in outstanding financing resulting from
the Medix acquisition. Average daily outstanding financing,
which includes debt and accounts receivable sold under the
company’s off balance sheet receivables financing facility
(Receivables Financing Facility), increased to $262.7 million for
2000 from $245.6 million in 1999. O&M expects to continue
to manage its financing costs by continuing its working capital
reduction initiatives and management of interest rates.

Nonrecurring restructuring expenses (credits). As a
result of the HCA contract cancellation in the second quarter
of 1998, the company recorded a nonrecurring restructuring
charge of $11.2 million, or $6.6 million after taxes, to downsize
operations. In the second quarters of 1999 and 2000, the com-
pany re-evaluated its restructuring reserve. Since the actions
under this plan had resulted in lower projected total costs than
originally anticipated, the company recorded reductions in the
reserve of $1.0 million in 1999 and $0.8 million in 2000, or
approximately $0.6 million and $0.4 million after taxes. In 2000,
1999 and 1998, amounts of $1.8 million, $2.1 million and
$2.0 million were charged against this liability. The remaining
accrual consists primarily of losses on lease commitments for
vacated warehouse and office space on leases through as late

Financing
(millions)

$450

$300

$150

$30

$20

$10

’96

’97

’98

’99

’00

Outstanding Financing

Financing Costs

S E L E C T E D F I N A N C I A L D A T A

as 2006, as well as anticipated asset write-offs. Management
attempts to sublease the vacant space when practicable to
reduce the cost of the restructuring plan.

Income taxes. The income tax provision was $27.1 million
in 2000, $22.1 million in 1999, and $14.6 million in 1998. O&M’s
effective tax rate was 45.0% in 2000, compared with 44.1% in
1999 and 42.0% in 1998. The increase in the effective tax rate
from year to year results primarily from the increase in certain
nondeductible expenses.

Net income. Net income increased 18% to $33.1 million in
2000 from $28.0 million in 1999. For 1999, net income was 39%
higher than 1998. The increase from 1998 to 1999 was primarily
due to the impact of the nonrecurring restructuring charge
discussed above. Excluding the effect of the restructuring
charge and subsequent credits, 2000 net income increased to
$32.7 million from $27.4 million in 1999 and $26.8 million in
1998 and net income per diluted common share increased to
$0.93 compared to $0.80 in 1999 and $0.75 in 1998. Excluding
the effect of the restructuring charge, 1999 net income attribut-
able to common stock increased to $27.4 million compared to
$24.9 million in 1998. The increase resulted from the retirement
of the company’s outstanding Series B Cumulative Preferred
Stock in May 1998 which was funded through the issuance of
$132.0 million of mandatorily redeemable preferred securities.
This favorable trend in net income from year to year is primarily
due to the increase in sales and success in controlling operating
expenses through productivity improvements.

Financial Condition, Liquidity and Capital Resources

Liquidity. As a result of favorable cash flows from operations,
combined outstanding debt and off balance sheet accounts
receivable securitization decreased by $47.3 million to
$233.5 million at December 31, 2000. Excluding sales of
accounts receivable and their subsequent collections under the
company’s receivables financing facility, $68.8 million of cash
was provided by operating activities in 2000, compared to
$61.7 million in 1999 and $67.5 million in 1998.

In July 1999, the company acquired certain net assets
of Medix for approximately $83 million. This acquisition was
funded by cash flow from operations and an increase in
outstanding debt.

During 2000, the company replaced its revolving credit

facility and receivables financing facility with new facilities

Owens & Minor, Inc. and Subsidiaries

expiring in April 2003 and July 2001. The new revolving credit
facility allows the company to borrow up to $225 million,
unchanged from the prior facility. Under the new receivables
financing facility, the company can sell up to $225 million of
accounts receivable, an increase of $75 million from the prior
facility. The company expects that its available financing will
be sufficient to fund its working capital needs and long-term
strategic growth, although this cannot be assured. At December
31, 2000, O&M had $222.8 million of unused credit under its
revolving credit facility and the ability to sell an additional
$145.0 million of accounts receivable under the receivables
financing facility.

Working Capital Management. The company’s working
capital increased by $14.2 million from December 31, 1999,
to $233.6 million at December 31, 2000, primarily due to a
reduction in the amount of receivables sold under the financing
facility. As of December 31, 2000, $80.0 million of receivables
were sold, compared to $105.6 million at December 31, 1999.
Excluding the impact of the financing facility, accounts receivable
increased by $9.4 million to $341.9 million at December 31, 2000.
The company continues to focus on the management of
inventory levels, and inventory turnover increased to 9.5 times
for the year ended December 31, 2000, from 9.2 times for the
year ended December 31, 1999, due to a combination of higher
sales and reduced inventory levels.

Capital Expenditures. Capital expenditures were approxi-
mately $19.6 million in 2000, of which approximately $16.8 million
was for computer hardware and software. The company
expects to continue supporting strategic initiatives and improv-
ing operational efficiency through investments in technology,
including system upgrades and the development of electronic
commerce. The company expects future expenditures to be
funded through cash flow from operations.

Recent Accounting Pronouncements. In May 1999, the
Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 137, Deferral of the
Effective Date of SFAS 133, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. SFAS 137 delayed the
effective date of SFAS 133 by one year. In September 2000, the
FASB amended SFAS 133 with SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an
amendment of FASB Statement No. 133. The company will be

A N A L Y S I S O F O P E R A T I O N S ( c o n t i n u e d )

required to adopt the provisions of this standard beginning on
January 1, 2001. As a result, the company’s interest rate swaps
will be recognized on the consolidated balance sheet as either
assets or liabilities at fair value, and the carrying amounts of
certain liabilities hedged by the swaps will be adjusted based
on changes in the values of the hedging instruments. At January 3,
2001, the interest rate swaps had a fair value of $0.2 million as
an asset. Adoption of this standard will not have a material
effect on the company’s net income.

In September 2000, the FASB issued SFAS 140, Accounting

for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of SFAS 125
of the same title. SFAS 140 revises the standards for securitiza-
tions and other transfers of financial assets and expands the
disclosure requirements for such transactions, while carrying
over many of the provisions of SFAS 125 without change. The
provisions of SFAS 140 are effective for transfers of financial
assets and extinguishments of liabilities occurring after March
31, 2001, and are to be applied prospectively. Management is
in the process of evaluating this standard, but does not believe
that it will change the company’s treatment of sales of accounts
receivable under its Receivables Financing Facility, or have any
material effect on the company’s consolidated financial posi-
tion, results of operations, or cash flows. The company has
adopted the disclosure requirements of SFAS 140, which were
required to be implemented in 2000. These disclosures are
included in Note 8 to the Consolidated Financial Statements.

Risks. The company is subject to risks associated with
changes in the medical industry, including continued efforts to
control costs, which place pressure on operating margin, and
changes in the way medical and surgical services are delivered
to patients. The loss of one of the company’s larger customers
could have a significant effect on its business. However, man-
agement believes that the company’s competitive position in
the marketplace and its ability to control costs would enable it
to continue profitable operations and attract new customers in
the event of such a loss.

Owens & Minor, Inc. and Subsidiaries

Market Risk. O&M provides credit, in the normal course
of business, to its customers. The company performs ongoing
credit evaluations of its customers and maintains reserves for
credit losses.

The company is exposed to market risk relating to

changes in interest rates. To manage this risk, O&M uses interest
rate swaps to modify the company’s exposure to interest rate
movements and reduce borrowing costs. The company enters
into these derivative transactions pursuant to its policies in
areas such as counterparty exposure and hedging practices.
O&M’s net exposure to interest rate risk consists of floating
rate instruments that are benchmarked to London Interbank
Offered Rate (LIBOR). The company is exposed to certain losses
in the event of nonperformance by the counterparties to these
swap agreements. However, O&M’s exposure is not significant
and, since the counterparties are investment grade financial
institutions, nonperformance is not anticipated.

The company is exposed to market risk from changes in
interest rates related to its interest rate swaps. Interest expense
is subject to change as a result of movements in interest rates.
As of December 31, 2000, O&M had $100 million of interest
rate swaps on which the company pays a variable rate based
on LIBOR and receives a fixed rate. A hypothetical increase
in interest rates of 10%, or 70 basis points, would result in a
potential reduction in future pre-tax earnings of approximately
$0.7 million per year in connection with these swaps.

Forward-Looking Statements. Certain statements in this
discussion constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown
risks, including, but not limited to, general economic and business
conditions, competition, changing trends in customer profiles,
outcome of outstanding litigation, and changes in government
regulations. Although O&M believes its expectations with respect
to the forward-looking statements are based upon reasonable
assumptions within the bounds of its knowledge of its business
and operations, there can be no assurance that actual results,
performance or achievements of the company will not differ
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.

C O N S O L I D A T E D

S T A T E M E N T S

O F

I N C O M E

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Year ended December 31,

Net sales
Cost of goods sold

Gross margin

Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Discount on accounts receivable securitization
Distributions on mandatorily redeemable preferred securities
Nonrecurring restructuring expense (credit)

Total expenses

Income before income taxes
Income tax provision

Net income
Dividends on preferred stock

Net income attributable to common stock

Net income per common share – basic

Net income per common share – diluted

Cash dividends per common share

See accompanying notes to consolidated ﬁnancial statements.

2000

1999

1998

$3,503,583

3,127,911

$3,194,134

2,851,556

$3,090,048

2,755,158

375,672

268,205

21,515

12,566

6,881

7,095

(750)

342,578

249,960

19,365

11,860

5,240

7,095

(1,000)

334,890

247,472

18,270

14,066

4,655

4,494

11,200

315,512

292,520

300,157

60,160

27,072

33,088

–

33,088

1.01

0.94

0.2475

50,058

22,079

27,979

–

27,979

0.86

0.82

0.23

34,733

14,588

20,145

1,898

18,247

0.56

0.20

C O N S O L I D A T E D

B A L A N C E

S H E E T S

(in thousands, except per share data)

December 31,

Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Deferred income taxes
Other assets, net

Total assets

Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other accrued liabilities

Total current liabilities

Long-term debt
Accrued pension and retirement plans
Deferred income taxes

Total liabilities

Company-obligated mandatorily redeemable preferred securities of subsidiary trust,

holding solely convertible debentures of Owens & Minor, Inc.

Shareholders’ equity

Preferred stock, par value $100 per share; authorized – 10,000 shares Series A;

Participating Cumulative Preferred Stock; none issued

Common stock, par value $2 per share; authorized – 200,000 shares; issued and

outstanding – 33,180 shares and 32,711 shares

Paid-in capital
Retained earnings
Accumulated other comprehensive loss

Total shareholders’ equity

Commitments and contingencies

Owens & Minor, Inc. and Subsidiaries

2000

1999

626

669

261,905

315,570

16,190

594,291

24,239

204,849

–

44,169

226,927

342,478

19,172

589,246

25,877

210,837

145

38,895

$867,548

$865,000

$291,507

$303,490

9,940

16,502

42,705

360,654

152,872

8,879

371

6,883

15,403

44,022

369,798

174,553

6,268

–

522,776

550,619

132,000

–

66,360

18,039

129,001

(628)

65,422

12,890

104,069

–

212,772

182,381

Total liabilities and shareholders’ equity

$867,548

$865,000

See accompanying notes to consolidated ﬁnancial statements.

C O N S O L I D A T E D

S T A T E M E N T S

O F

C A S H

F L O W S

Owens & Minor, Inc. and Subsidiaries

(in thousands)

Year ended December 31,

Operating activities
Net income
Adjustments to reconcile net income to cash provided by operating

activities:
Depreciation and amortization
Nonrecurring restructuring provision (credit)
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and notes receivable
Sales of (collections of sold) accounts receivable, net
Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and current liabilities

Other, net

2000

1999

1998

$33,088

$ 27,979

$ 20,145

21,515

(750)

(1,293)

2,973

227

(25,612)

(9,593)

23,935

(14,783)

8,926

4,522

19,365

(1,000)

8,236

1,741

559

30,612

(30,131)

(42,397)

86,871

(11,232)

1,686

18,270

11,200

22,737

1,536

496

(35,000)

8,617

8,899

(23,375)

(651)

(389)

Cash provided by operating activities

43,155

92,289

32,485

Investing activities
Net cash paid for acquisition of business
Additions to property and equipment
Additions to computer software
Other, net

Cash used for investing activities

Financing activities
Net proceeds from issuance of mandatorily redeemable

preferred securities

Repurchase of preferred stock
Additions to debt
Reductions of debt
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

(8,005)

(11,622)

(152)

(82,699)

(8,933)

(13,172)

(2,359)

–

(8,053)

(4,556)

160

(19,779)

(107,163)

(12,449)

–

(21,645)

1,545

(8,156)

4,837

–

25,178

–

(2,741)

(7,520)

127,268

(115,000)

–

(32,550)

5,554

(9,268)

3,923

Cash provided by (used for) ﬁnancing activities

(23,419)

14,997

(20,073)

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

(43)

669

123

546

(37)

583

Cash and cash equivalents at end of year

626

669

546

See accompanying notes to consolidated ﬁnancial statements.

C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N S H A R E H O L D E R S ’

E Q U I T Y

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Balance December 31, 1997
Net income

Comprehensive income

Issuance of restricted stock
Unearned compensation
Common stock cash dividends(1)
Preferred stock cash dividends(1)
Exercise of stock options
Repurchase of preferred stock
Other

Balance December 31, 1998
Net income

Comprehensive income

Issuance of restricted stock
Unearned compensation
Common stock cash dividends(1)
Exercise of stock options
Other

Balance December 31, 1999
Net income
Unrealized loss on investment,

net of $419 tax benefit

Comprehensive income

Issuance of restricted stock
Unearned compensation
Common stock cash dividends(1)
Exercise of stock options
Other

Balance December 31, 2000

Preferred
Shares
Outstanding

Preferred
Stock

Common
Shares
Outstanding

Common
Stock

Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

1,150

$ 115,000

32,213

$64,426 $ 8,005 $ 71,870

–

(1,150)

(115,000)

–

20,145

128

–

832

(657)

–

(6,507)

(1,898)

333

666

3,978

–

122

32,618

65,236 12,280

–

83,610

27,979

148

–

893

(454)

–

100

–

(7,520)

–

32,711

65,422 12,890 104,069

–

102

204

–

355

–

710

–

622

(139)

33,088

–

(8,156)

4,541

125

–

Total
Shareholders’
Equity

$ 259,301

20,145

960

(657)

(6,507)

(1,898)

4,644

(115,000)

138

161,126

27,979

1,041

(454)

(7,520)

126

182,381

33,088

(628)

32,460

826

(139)

(8,156)

5,251

149

–

(628)

–

33,180

$66,360 $18,039 $129,001

$(628)

$ 212,772

(1) Cash dividends were $0.2475, $0.23 and $0.20 per common share in 2000, 1999 and 1998. Cash dividends were $1.65 per preferred share in

1998.

See accompanying notes to consolidated ﬁnancial statements.

N O T E S

T O

C O N S O L I D A T E D

F I N A N C I A L

S T A T E M E N T S

Note 1 – Summary of Signiﬁcant Accounting Policies

Basis of Presentation. Owens & Minor, Inc. is the
leading distributor of national name brand medical and
surgical supplies in the United States. The consolidated
financial statements include the accounts of Owens & Minor,
Inc. and its wholly owned subsidiaries (the company). All
significant intercompany accounts and transactions have
been eliminated. The preparation of the consolidated
financial statements in accordance with generally accepted
accounting principles requires management assumptions and
estimates that affect amounts reported. Actual results may
differ from these estimates.

Cash and Cash Equivalents. Cash and cash equivalents
include cash and marketable securities with an original
maturity or maturity at acquisition of three months or less.
Cash and cash equivalents are stated at cost, which
approximates market value.

Accounts Receivable. The company maintains an allowance
for doubtful accounts based upon the expected collectibility
of accounts receivable. Allowances for doubtful accounts of
$6.4 million and $6.5 million have been applied as reductions
of accounts receivable at December 31, 2000 and 1999.

Merchandise Inventories. The company’s merchandise
inventories are valued on a last-in, first-out (LIFO) basis.

Property and Equipment. Property and equipment are
stated at cost or, if acquired under capital leases, at the
lower of the present value of minimum lease payments or
fair market value at the inception of the lease. Normal
maintenance and repairs are expensed as incurred, and
renovations and betterments are capitalized. Depreciation
and amortization are provided for financial reporting
purposes using the straight-line method over the estimated
useful lives of the assets or, for capital leases and leasehold
improvements, over the terms of the lease, if shorter. In
general, the estimated useful lives for computing deprecia-
tion and amortization are four to eight years for warehouse
equipment and three to eight years for computer, office and
other equipment. Straight-line and accelerated methods of
depreciation are used for income tax purposes.

Owens & Minor, Inc. and Subsidiaries

Goodwill. Goodwill is amortized on a straight-line basis
over 40 years from the dates of acquisition. As of December
31, 2000 and 1999, goodwill was $238.8 million and the
related accumulated amortization was $34.0 million and
$28.0 million. Based upon management’s assessment of
undiscounted future cash flows, the carrying value of
goodwill at December 31, 2000 has not been impaired. The
carrying value of goodwill could be impacted if estimated
future cash flows are not achieved.

Computer Software. The company develops and pur-
chases software for internal use. Software development
costs incurred during the application development stage are
capitalized. Once the software has been installed and tested
and is ready for use, additional costs incurred in connec-
tion with the software are expensed as incurred. Capital-
ized computer software costs are amortized over the
estimated useful life of the software, usually between 3 and
5 years. Computer software costs are included in other
assets, net in the consolidated balance sheets. Unamortized
software at December 31, 2000 and 1999 was $23.7 million
and $18.2 million. Depreciation and amortization expense
includes $6.1 million, $4.9 million and $5.1 million of
software amortization for the years ended December 31,
2000, 1999 and 1998.

Investment. The company owns equity securities of a
provider of business-to-business e-commerce services in the
healthcare industry. The investment is classified as available-
for-sale, in accordance with SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, and is included in
other assets, net in the consolidated balance sheets at fair
value, with unrealized gains and losses, net of tax, reported
as accumulated other comprehensive loss. At December 31,
2000, the estimated fair value (based on the quoted market
price), gross unrealized loss and cost basis of this investment
were $0.2 million, $1.0 million and $1.2 million. At December
31, 1999, the investment was stated at its cost basis of $1.2
million, as there was no market for the securities at that time.

Revenue Recognition. The company recognizes product
revenue when product has been shipped, fees are determin-
able, and collectibility is probable. Service revenue is
recognized ratably over the period during which services
are provided. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin
(SAB) 101, Revenue Recognition in Financial Statements,
which clarifies the application of generally accepted
accounting principles to revenue recognition in financial
statements. The company adopted the provisions of SAB
101 in the fourth quarter of 2000. No changes in accounting
principles or restatements were required, as the company’s
revenue recognition policy was in compliance with the SAB.

Reclassiﬁcation of Shipping Fees. In July 2000, the
Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue 00-10, Accounting for Shipping and Handling
Fees and Costs. This consensus requires that all amounts
billed to a customer in a sale transaction related to shipping
and handling represent revenue and should be classified as
such. Prior to the consensus, the company classified certain
amounts billed to customers for shipping as a reduction of
outbound freight costs in selling, general and administrative
(SG&A) expenses. The company adopted the provisions of
the consensus in the fourth quarter of 2000 and, accord-
ingly, reclassified these amounts from SG&A expenses to
net sales for all prior periods. As a result, net sales, gross
margin, and SG&A expenses for 1999 and 1998 have been
increased by $7.8 million and $7.9 million. Shipping costs
are included in SG&A expenses.

Stock-based Compensation. The company uses the
intrinsic value method as defined by Accounting Principles
Board Opinion No. 25 to account for stock-based compensa-
tion. This method requires compensation expense to be
recognized for the excess of the quoted market price of the
stock at the grant date or the measurement date over the
amount an employee must pay to acquire the stock. The
disclosures required by SFAS 123 are included in Note 11 to
the Consolidated Financial Statements.

Derivative Financial Instruments. The company enters
into interest rate swaps as part of its interest rate risk
management strategy. These instruments are designated as
hedges of interest-bearing liabilities and anticipated cash
flows associated with off balance sheet financing. Net
payments or receipts are accrued as interest payable or
receivable and as interest expense or income. Fees related
to these instruments are amortized over the life of the
instrument. If the outstanding balance of the underlying
liability were to drop below the notional amount of the
swap, the excess portion of the swap would be marked to
market, and the resulting gain or loss included in net
income.

Effective January 1, 2001, the company will adopt SFAS

133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 137, Accounting for
Derivative Instruments and Hedging Activities—Deferral of
the Effective Date of FASB Statement No. 133, and SFAS 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities measured at fair
value. The accounting for changes in the fair value of a
derivative depends on the use of the derivative. Adoption of
these new accounting standards is not expected to have a
material effect on the company’s net income, but will change
the reported values of assets and liabilities recorded in the
consolidated balance sheet.

Operating Segments. As defined in SFAS 131,
Disclosures about Segments of an Enterprise and Related
Information, the company has 11 operating segments,
representing various geographic areas within the United
States. As each of these segments is substantially identical
to the others in each of the five aggregation characteris-
tics identified in the statement, they are considered one
operating segment for purposes of financial statement
disclosure.

Note 2 – Acquisition

On July 30, 1999, the company acquired certain net assets
of Medix, Inc. (Medix), a distributor of medical and surgical
supplies, for approximately $83 million. Medix’ customers,
located primarily in the Midwest, included acute care
hospitals, long-term care facilities and clinics. The acquisi-
tion has been accounted for by the purchase method and,
accordingly, the operating results of Medix have been
included in the company’s consolidated financial statements
since the date of acquisition. Assuming the acquisition had
been made at the beginning of the periods, consolidated
net sales, on a pro forma basis would have been approxi-
mately $3.31 billion and $3.28 billion for the years ended
December 31, 1999 and 1998. Consolidated net income and
net income per share on a pro forma basis would not have
been materially different from the results reported.

The company paid cash of approximately $68 million

and assumed debt of approximately $15 million, which was
paid off as part of the closing transaction. The excess of the
purchase price over the fair value of the identifiable net
assets acquired of approximately $58 million has been
recorded as goodwill and is being amortized on a straight-
line basis over 40 years.

In connection with the acquisition, management adopted
a plan for integration of the businesses that includes closure
of some Medix facilities and consolidation of certain adminis-
trative functions. An accrual was established to provide for
certain costs of this plan. The following table sets forth the
major components of the accrual and activity through
December 31, 2000:

(in thousands)

Exit Plan
Provision Charges

Balance at
December 31,
2000

Losses under lease
commitments

Employee separations
Other

$1,643

$ 358

$1,285

395

685

312

404

281

Total

$2,723

$1,074

$1,649

The employee separations relate to severance costs for

employees in operations and activities being exited. As of
December 31, 2000, approximately 40 employees had been
terminated. The integration of the Medix business is
expected to be completed in 2001.

Note 3 – Restructuring

In the second quarter of 1998, the company recorded a
nonrecurring restructuring charge of $11.2 million related to
the impact of the cancellation of its medical/surgical
distribution contract with HCA – The Healthcare Company
(HCA). The restructuring plan includes reductions in
warehouse space and in the number of employees in those

facilities that had the highest volume of business with HCA.
In the second quarters of 2000 and 1999, the company re-
evaluated its estimate of the remaining costs to be incurred
and reduced the accrual by $0.8 million in 2000 and $1.0
million in 1999. Approximately 130 employees were
terminated in connection with the restructuring plan.

The following table sets forth the activity in the restructuring accrual through December 31, 2000:

(in thousands)

Losses under lease commitments
Asset write-offs
Employee separations
Other

Total

Restructuring
Provision

$ 4,194

3,968

2,497

541

$11,200

Charges

Adjustments

$3,058

1,466

1,288

$5,911

$ 1,582

(1,681)

(1,209)

(442)

$(1,750)

Balance at
December 31,
2000

$2,718

821

–

$3,539

Note 4 – Merchandise Inventories

Depreciation and amortization expense for property and

equipment in 2000, 1999, and 1998 was $9.4 million, $9.3
million and $8.6 million.

Note 6 – Accounts Payable

Accounts payable balances were $291.5 million and $303.5
million as of December 31, 2000 and 1999, of which $249.6
million and $264.4 million were trade accounts payable and
$41.9 million and $39.1 million, were drafts payable. Drafts
payable are checks written in excess of bank balances to be
funded upon clearing the bank.

The company’s merchandise inventories are valued on a
LIFO basis. If LIFO inventories had been valued on a
current cost or first-in, first-out (FIFO) basis, they would
have been greater by $31.6 million and $28.6 million as of
December 31, 2000 and 1999.

Note 5 – Property And Equipment

The company’s investment in property and equipment
consists of the following:

(in thousands)

December 31,

Warehouse equipment

Computer equipment

Office and other equipment

Leasehold improvements

Land and improvements

Accumulated depreciation

and amortization

2000

1999

$24,012

$23,337

34,137

12,683

10,540

1,743

30,606

12,804

9,903

1,743

83,115

78,393

(58,876)

(52,516)

Property and equipment, net

$24,239

$25,877

Note 7 – Debt

The company’s long-term debt consists of the following:

(in thousands)

December 31,

10.875% Senior Subordinated Notes, mature June 2006
Revolving Credit Facility with interest based on London

Interbank Offered Rate (LIBOR) or Prime Rate, expires April
2003, credit limit of $225,000

Obligation under financing agreement

Total debt
Less current maturities

Long-term debt

2000

1999

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value

$150,000

$156,375

$150,000

$155,250

2,200

1,333

2,200

1,333

22,600

2,578

22,600

2,578

153,533

159,908

175,178

180,428

(661)

(625)

$152,872

$159,247

$174,553

$179,803

In May 1996, the company issued $150.0 million of
10.875% Senior Subordinated 10-year notes (Notes), which
mature on June 1, 2006. Interest on the Notes is payable
semi-annually on June 1 and December 1. The Notes are
redeemable, after June 1, 2001, at the company’s option,
subject to certain restrictions. The Notes are unconditionally
guaranteed on a joint and several basis by all significant
subsidiaries of the company, other than O&M Funding
Corp. (OMF) and Owens & Minor Trust I.

In April 2000, the company replaced its Revolving
Credit Facility with a new agreement. The new Revolving
Credit Facility expires in April 2003 with interest based on,
at the company’s discretion, LIBOR or the Prime Rate. The
company is charged a commitment fee of between 0.20%
and 0.275% on the unused portion of the facility and a
utilization fee of 0.25% if borrowings exceed $112.5 million.
The terms of the Revolving Credit Facility limit the amount
of indebtedness that the company may incur, require the
company to maintain certain levels of net worth, current
ratio, leverage ratio and fixed charge coverage, and restrict

the ability of the company to materially alter the character of
the business through consolidation, merger or purchase or
sale of assets. At December 31, 2000, the company was in
compliance with these covenants.

The company entered into a financing agreement for
computer software licenses. This agreement requires periodic
payments through January 2002, and interest is imputed at a
rate of 7.0%.

Net interest expense includes finance charge income of

$5.3 million, $4.6 million, and $3.0 million in 2000, 1999, and
1998. Finance charge income represents payments from cus-
tomers for past due balances on their accounts. Cash pay-
ments for interest during 2000, 1999, and 1998 were $16.5
million, $16.0 million, and $16.4 million.

The estimated fair value of long-term debt is based on
the borrowing rates currently available to the company for
loans with similar terms and average maturities. The annual
maturities of long-term debt within the five years subsequent
to December 31, 2000 are: $0.7 million in 2001, $0.7 million
in 2002 and $2.2 million in 2003.

Note 8 – Off Balance Sheet Receivables Financing Facility

Effective July 14, 2000, the company replaced its Receivables
Financing Facility with a new facility expiring in July 2001.
Under the terms of the new facility, OMF is entitled to
transfer, without recourse, certain of the company’s trade
receivables and to receive up to $225.0 million from a group
of unrelated third party purchasers at a cost of funds equal
to commercial paper rates, the Prime Rate or LIBOR (plus a
charge for administrative and credit support services). The
terms of the new facility require the company to maintain
certain levels of net worth, current ratio, leverage ratio and
fixed coverage, and restrict the company’s ability to materi-
ally alter the character of the business through consolidation,
merger, or purchase or sale of assets. The company contin-
ues to service the receivables that are transferred under the
facility.

At December 31, 2000 and 1999, net accounts receivable

of $80.0 million and $105.6 million, respectively, had been
sold under the agreements in effect at those dates and, as a
result, have been derecognized in the consolidated balance
sheet.

Note 9 – Derivative Financial Instruments

The company manages its interest rate risk primarily
through the use of interest rate swap agreements. The
company’s interest rate swap agreements as of December
31, 2000 and 1999 included $100.0 million notional amounts
that effectively converted a portion of the company’s fixed
rate financing instruments to variable rates. Under these
swap agreements, expiring in May 2006, the company pays
the counterparties a variable rate based on LIBOR and the
counterparties pay the company a fixed interest rate ranging
from 7.35% to 7.38% in 2000 and 7.29% to 7.32% in 1999.
At the option of the counterparties, these swaps can be
terminated in 2001. As of December 31, 1999, the company
also had $65.0 million notional amount of interest rate swap
agreements that effectively converted the company’s variable
rate financing instruments to fixed rate instruments. Under
these swap agreements, which were terminated in
November 2000, the company paid the counterparties a
fixed rate ranging from 5.75% to 5.93% and the
counterparties paid the company a variable rate based
on LIBOR.

The payments received or disbursed in connection with
the interest rate swaps are included in interest expense, net.
Based on estimates of the prices obtained from a dealer, the
company had an unrealized gain of approximately $0.1
million and an unrealized loss of approximately $1.0 million
at December 31, 2000 and 1999 for the fixed to variable rate
swaps, and an unrealized gain of approximately $0.7 million
at December 31, 1999 for the variable to fixed rate swaps.
The company is exposed to certain losses in the event

of nonperformance by the counterparties to these swap
agreements. However, the company’s exposure is not
material and, since the counterparties are investment grade
financial institutions, nonperformance is not anticipated.

Note 10 – Mandatorily Redeemable Preferred Securities

In May 1998, Owens & Minor Trust I (Trust), a statutory
business trust sponsored and wholly owned by Owens &
Minor, Inc. (O&M), issued 2,640,000 shares of $2.6875 Term
Convertible Securities, Series A (Securities), for aggregate
proceeds of $132.0 million. Each Security has a liquidation
value of $50. The net proceeds were invested by the Trust in
5.375% Junior Subordinated Convertible Debentures of O&M
(Debentures). The Debentures are the sole assets of the
Trust. O&M applied substantially all of the net proceeds of
the Debentures to repurchase 1,150,000 shares of its Series B
Cumulative Preferred Stock at its par value.

The Securities accrue and pay quarterly cash distribu-
tions at an annual rate of 5.375% of the liquidation value.
Each Security is convertible into 2.4242 shares of the com-
mon stock of O&M at the holder’s option prior to May 1,
2013. The Securities are mandatorily redeemable upon the
maturity of the Debentures on April 30, 2013, and may be
redeemed by the company in whole or in part after May 1,
2001. The obligations of the Trust, as provided under the
term of the Securities, are fully and unconditionally
guaranteed by O&M.

The estimated fair value of the Securities was $122.1
million and $79.5 million at December 31, 2000 and 1999
based on quoted market prices. As of December 31, 2000
and 1999, the company had accrued $1.2 million of
distributions related to the Securities.

Note 11 – Stock-based Compensation
The company maintains stock-based compensation plans
(Plans) that provide for the granting of stock options, stock
appreciation rights (SARs), restricted common stock and
common stock. The Plans are administered by the
Compensation and Benefits Committee of the Board of
Directors and allow the company to award or grant to
officers, directors and employees incentive, non-qualified
and deferred compensation stock options, SARs and
restricted and unrestricted stock. At December 31, 2000,
approximately 0.6 million common shares were available for
issuance under the Plans.

Stock options awarded under the Plans generally vest

over three years and expire ten years from the date of
grant. The options are granted at a price equal to fair
market value at the date of grant. Restricted stock awarded
under the Plans generally vests over three or five years. At
December 31, 2000, there were no SARs outstanding.

The company has a Management Equity Ownership

Program. This program requires each of the company’s
officers to own the company’s common stock at specified
levels, which gradually increase over five years. Officers who
meet specified ownership goals in a given year are awarded
restricted stock under the provisions of the program. The
company also has an Annual Incentive Plan. Under the plan,
certain employees may be awarded restricted stock based on
pre-established objectives. Upon issuance of restricted shares,
unearned compensation is charged to shareholders’ equity
for the market value of restricted stock and recognized as
compensation expense ratably over the vesting period.
Amortization of unearned compensation for restricted stock
awards was approximately $693 thousand, $534 thousand
and $302 thousand for 2000, 1999, and 1998.

The following table summarizes the activity and terms of outstanding options at December 31, 2000, and for the years in

the three-year period then ended:

(in thousands, except per share data)

Options outstanding beginning of

year
Granted
Exercised
Expired/cancelled

Outstanding at end of year
Exercisable options at end of year

Options

2,448

500

(358)

(87)

2,503

1,655

2000

1999

1998

Average
Exercise
Price

Options

$13.75

2,001

$13.78

1,940

$13.50

8.73

13.57

12.38

$12.82

$13.75

600

(6)

(147)

2,448

1,560

13.70

12.68

13.66

$13.75

$13.83

550

(333)

(156)

2,001

1,137

13.79

12.12

13.89

$13.78

$14.16

At December 31, 2000, the following option groups were outstanding:

Range of
Exercise Prices

$ 8.31 – 11.94

$12.50 – 17.06

Outstanding

Exercisable

Number of
Options
(000’s)

600

1,903

2,503

Weighted
Average
Exercise
Price

$ 8.85

$14.07

$12.82

Weighted
Average
Remaining
Contractual Life
(Years)

8.71

5.96

6.62

Number of
Options
(000’s)

132

1,523

1,655

Weighted
Average
Exercise
Price

$10.35

$14.04

$13.75

Weighted
Average
Remaining
Contractual Life
(Years)

7.48

5.49

5.65

Using the intrinsic value method, the company’s 2000,
1999 and 1998 net income includes stock-based compensa-
tion expense (net of tax benefit) of approximately $381
thousand, $306 thousand and $201 thousand. Had the
company included in stock-based compensation expense the
fair value at grant date of stock option awards granted in
2000, 1999 and 1998, net income would have been $32.4
million (or $0.99 per basic common share and $0.92 per
diluted common share), $26.6 million (or $0.82 per basic
common share and $0.78 per diluted common share) and
$19.0 million (or $0.52 per basic and diluted common share)
for the years ended December 31, 2000, 1999 and 1998. The
weighted average fair value of options granted in 2000, 1999
and 1998 was $2.69, $4.35 and $4.06, per option. The fair
value of each option is estimated on the date of grant using
the Black-Scholes option pricing model with the following
assumptions used for grants: dividend yield of 1.6%-3.0% in
2000, 1.6%-2.4% in 1999, and 1.2%-1.5% in 1998; expected
volatility of 36.7% in 2000, 32.4%-38.6% in 1999, and 32.4%-
37.9% in 1998; risk-free interest rate of 5.1% in 2000, 6.4% in
1999, and 4.7% in 1998; and expected lives of 5 years in
2000 and 2.1-5.1 years in 1999 and 1998.

Note 12 – Retirement Plans

Savings and Protection Plan. The company maintains a
voluntary Savings and Protection Plan covering substantially
all full-time employees who have completed one month of
service and have attained age 18. The company matches a

certain percentage of each employee’s contribution. The plan
provides for a minimum contribution by the company to the
plan for all eligible employees of 1% of their salary. This
contribution can be increased at the company’s discretion.
The company incurred approximately $2.7 million, $2.5
million and $2.1 million in 2000, 1999, and 1998 of expenses
related to this plan.

Pension Plan. The company has a noncontributory pension
plan covering substantially all employees who had earned
benefits as of December 31, 1996. On that date, substantially
all of the benefits of employees under this plan were frozen,
with all participants becoming fully vested. The company
expects to continue to fund the plan based on federal
requirements, amounts deductible for income tax purposes
and as needed to ensure that plan assets are sufficient to
satisfy plan liabilities. As of December 31, 2000, plan assets
consist primarily of equity securities, including 34 thousand
shares of the company’s common stock, and U.S.
Government securities.

Retirement Plan. The company also has a noncontributory,
unfunded retirement plan for certain officers and other key
employees. Benefits are based on a percentage of the
employees’ compensation. The company maintains life
insurance policies on plan participants to act as a financing
source for the plan.

The following table sets forth the plans’ financial status and the amounts recognized in the company’s consolidated

balance sheets:

(in thousands)

December 31,

Change in beneﬁt obligation
Benefit obligation, beginning of year
Service cost
Interest cost
Amendment
Actuarial loss (gain)
Benefits paid

Pension Plan

Retirement Plan

2000

1999

2000

1999

$22,518

$22,288

$ 5,888

$ 6,094

224

1,540

–

142

(1,371)

225

1,470

–

(571)

(894)

466

604

3,574

1,197

(210)

542

406

–

(978)

(176)

Benefit obligation, end of year

$23,053

$22,518

$ 11,519

$ 5,888

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contribution
Benefits paid

$27,785

(1,650)

–

(1,371)

$24,143

4,536

–

(894)

–

210

(210)

–

176

(176)

Fair value of plan assets, end of year

$24,764

$27,785

–

Funded status
Funded status at December 31
Unrecognized net actuarial (gain) loss
Unrecognized prior service cost (benefit)
Unrecognized net obligation being recognized

through 2002

Net amount recognized

$ 1,711

(294)

$ 5,267

(4,112)

–

$(11,519)

$(5,888)

1,830

3,254

635

(188)

123

$ 1,417

$ 1,155

$ (6,353)

$(5,318)

Amounts recognized in the consolidated balance sheets
Prepaid benefit cost
Accrued benefit cost
Intangible asset

$ 1,417

$ 1,155

–

(8,255)

1,902

–

(5,318)

–

Net amount recognized

$ 1,417

$ 1,155

$ (6,353)

$(5,318)

The components of net periodic pension cost for the

Note 13 – Income Taxes

Pension and Retirement Plans are as follows:

The income tax provision consists of the following:

(in thousands)

Year ended
December 31,

Service cost
Interest cost
Expected return on

plan assets
Amortization of

prior service cost
(benefit)
Amortization of
transition
obligation
Recognized net
actuarial loss

Net periodic

pension cost

2000

1999

1998

690

2,144

767

1,876

$ 597

1,765

(2,026)

(1,811)

(1,682)

(in thousands)

Year ended
December 31,

Current tax provision

(benefit):
Federal
State

Total current

2000

1999

1998

$23,604

$11,724

$ (7,690)

4,761

2,119

(459)

133

(16)

(17)

provision (benefit)

28,365

13,843

(8,149)

Deferred tax provision

(benefit):
Federal
State

Total deferred

(1,131)

(162)

7,206

1,030

19,895

2,842

984

941

$ 761

provision (benefit)

(1,293)

8,236

22,737

The weighted average discount rate used in determining

the actuarial present value of the projected benefit obliga-
tions was assumed to be 6.75% for the Pension Plan and
7.75% for the Retirement Plan in 2000 and 7.0% for the
Pension Plan and 8.0% for the Retirement Plan in 1999. The
rate of increase in future compensation levels used in
determining the projected benefit obligation was 5.5% in
2000 and 1999. The expected long-term rate of return on
plan assets was assumed to be 8.5% in 2000 and 1999.

Total income tax

provision

$27,072

$22,079

$14,588

A reconciliation of the federal statutory rate to the

company’s effective income tax rate is shown below:

Year ended
December 31,

Federal statutory rate
Increases (reductions) in
the rate resulting from:
State income taxes, net
of federal income tax
impact

Nondeductible goodwill

amortization

Nontaxable income
Other, net

2000

1999

1998

35.0%

5.5

2.5

–

2.0

5.5

3.0

–

0.6

4.9

4.7

(4.0)

1.4

Effective rate

45.0%

44.1%

42.0%

At December 31, 2000 and 1999, the company had a
$0.05 million and $0.04 million valuation allowance, for state
net operating losses. Based on the level of historical taxable
income and projections of future taxable income over the
periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the
company will realize the benefits of these deductible
differences, net of existing valuation allowances. Cash
payments for income taxes for 2000, 1999, and 1998 were
$23.8 million, $17.9 million, and $14.1 million, respectively.
In August 2000, the company received notice from the
Internal Revenue Service that it has disallowed certain prior
year deductions for interest on loans associated with the
company’s corporate-owned life insurance (COLI) program.
Management believes that the company has complied with
the tax law as it relates to its COLI program, and has filed
an appeal with the Internal Revenue Service. The impact of
the disallowance of these deductions, if appeals were
unsuccessful, would be approximately $8.5 million after tax,
including interest. The ultimate resolution of this matter may
take several years and a determination adverse to the
company could have a material impact on the company’s
results of operations.

The tax effects of temporary differences that give rise to

significant portions of the deferred tax assets and deferred
tax liabilities are presented below:

(in thousands)

Year ended
December 31,

Deferred tax assets:

Allowance for doubtful

accounts

Accrued liabilities not
currently deductible
Employee benefit plans
Nonrecurring restructuring

expenses

Property and equipment
Tax loss carryforward, net
Unrealized loss on

investment

Other

2000

1999

$ 2,567

$ 2,592

3,979

4,214

1,416

201

205

419

1,301

3,900

3,767

2,444

–

633

–

1,156

Total deferred tax assets

14,302

14,492

Deferred tax liabilities:

Merchandise inventories
Accounts receivable
Property and equipment
Goodwill
Computer software
Other

25,133

24,531

700

–

2,080

2,422

840

1,400

1,869

1,093

472

385

Total deferred tax liabilities

31,175

29,750

Net deferred tax liability

$(16,873)

$(15,258)

Note 14 – Net Income Per Common Share

The following sets forth the computation of basic and diluted net income per common share:

(in thousands, except per share data)

Year ended December 31,

Numerator:

Net income
Preferred stock dividends

Numerator for basic net income per common share – net income available to

common shareholders
Distributions on convertible mandatorily redeemable preferred securities,

net of taxes

2000

1999

1998

$33,088

$27,979

–

$20,145

1,898

33,088

27,979

18,247

3,902

3,966

–

Numerator for diluted net income per common share – net income available to

common shareholders after assumed conversions

$36,990

$31,945

$18,247

Denominator:

Denominator for basic net income per common share – weighted average

Effect of dilutive securities:

Conversion of mandatorily redeemable preferred securities
Stock options and restricted stock
Other

Denominator for diluted net income per common share – adjusted weighted

average shares and assumed conversions

Net income per common share – basic

Net income per common share – diluted

32,712

32,574

32,488

6,400

341

–

6,400

124

–

39,453

39,098

32,591

$ 1.01

$ 0.86

$ 0.56

$ 0.94

$ 0.82

$ 0.56

During the years ended December 31, 2000, 1999, and
1998, outstanding options to purchase approximately 1,550
thousand, 2,263 thousand and 461 thousand common shares
were excluded from the calculation of diluted net income
per share because their exercise price exceeded the average
market price for the year.

Note 15 – Shareholders’ Equity

In May 1998, the company repurchased all of the shares of its
Series B preferred stock at par value. Each share of preferred
stock had an annual dividend of $4.50, payable quarterly, had
voting rights on items submitted to a vote of the holders of
common stock and was convertible into approximately 6.1
shares of common stock at the shareholder’s option.

The company has a shareholder rights agreement under

which 8/27ths of a Right is attendant to each outstanding
share of common stock of the company. Each full Right

entitles the registered holder to purchase from the company
one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock (the Series A Preferred Stock), at
an exercise price of $75 (the Purchase Price). The Rights will
become exercisable, if not earlier redeemed, only if a person
or group acquires 20% or more of the outstanding shares of
the company’s common stock or announces a tender offer,
the consummation of which would result in ownership by a
person or group of 20% or more of such outstanding shares.
Each holder of a Right, upon the occurrence of certain
events, will become entitled to receive, upon exercise and
payment of the Purchase Price, Series A Preferred Stock (or
in certain circumstances, cash, property or other securities of
the company or a potential acquirer) having a value equal to
twice the amount of the Purchase Price. The Rights will
expire on April 30, 2004, if not earlier redeemed.

Note 16 – Commitments And Contingencies

Net sales to member hospitals under contract with

The company has a commitment through November 2, 2008
to outsource its information technology operations, includ-
ing strategic application development services. The commit-
ment is cancelable after November 2, 2003 with 180 days
prior notice and payment of a minimum termination fee of
between $3.0 million to $12.0 million depending upon the
date of termination. The company has a commitment
through December 2005 to outsource the management and
operation of its mainframe computer. This commitment is
cancelable at any time on 180 days prior notice and a
minimum termination fee of between $1.7 million and
$3.5 million, depending upon the date of termination.

The company also has entered into non-cancelable
agreements to lease certain office and warehouse facilities
with remaining terms ranging from one to seven years.
Certain leases include renewal options, generally for five-
year increments. At December 31, 2000, future minimum
annual payments under non-cancelable operating lease
agreements with original terms in excess of one year are
as follows:

(in thousands)

2001
2002
2003
2004
2005
Later years

Total minimum payments

Total

$21,366

18,275

15,493

11,677

8,138

6,836

$81,785

Rent expense for all operating leases for the years

ended December 31, 2000, 1999, and 1998 was $28.1
million, $26.1 million, and $26.1 million.

The company has limited concentrations of credit risk

with respect to financial instruments. Temporary cash
investments are placed with high credit quality institutions
and concentrations within accounts and notes receivable are
limited due to their geographic dispersion.

Novation totaled $1.8 billion in 2000, $1.7 billion in 1999 and
$1.5 billion in 1998, approximately 51%, 53% and 49%, of
the company’s net sales. As members of a group purchasing
organization, Novation hospitals have an incentive to pur-
chase from their primary selected distributor; however, they
operate independently and are free to negotiate directly with
distributors and manufacturers.

Note 17 – Legal Proceedings

Prior to December 1992, the company’s subsidiary Stuart
Medical, Inc. (Stuart), which was acquired in 1994, distrib-
uted spinal fixation devices manufactured by Sofamor S.N.C.
(formerly known as Sofamor, S.A.). As of January 8, 2001,
Stuart was named as a defendant in 26 lawsuits alleging
personal injuries attributable to spinal fixation devices
distributed by Stuart (the Cases).

On August 9, 1999, Medtronic Sofamor Danek, Inc.,
Danek Medical, Inc. and Sofamor, S.N.C., successors to the
manufacturer of the spinal fixation devices distributed by
Stuart, assumed the defense of Stuart and indemnified Stuart
and others against all costs of defense, any settlements
and/or any adverse judgment(s) that may be entered against
Stuart in these Cases. Stuart also retains insurance coverage
for the defense of the Cases. In addition, the company and
Stuart are contractually entitled to indemnification by the
former shareholders of Stuart for any liabilities and related
expenses incurred by the company or Stuart in connection
with the foregoing litigation. Management believes that
Stuart’s available insurance coverage, together with the
indemnification rights discussed above, is adequate to cover
any losses should they occur. The company is not aware of
any uncertainty as to the availability and adequacy of such
insurance or indemnification, although there can be no
assurance that the Sofamor successor companies, Stuart’s
insurance carriers and former shareholders will have
sufficient financial resources in the future to meet such
obligations.

As of December 31, 2000, approximately 174 lawsuits
(the Lawsuits), seeking compensatory and punitive damages,
in most cases of an unspecified amount, have been filed in
various federal and state courts against the company, prod-
uct manufacturers and other distributors and sellers of
natural rubber latex products. The company has obtained
dismissal or summary judgment in 45 cases. The Lawsuits
allege injuries arising from the use of latex products,
principally medical gloves. The active Lawsuits (122) also
include claims by approximately 80 spouses asserting loss of
consortium. The company may be named as a defendant in
additional, similar lawsuits in the future. In the course of its
medical supply business, the company has distributed latex
products, including medical gloves, but it does not, nor has
it ever manufactured any latex products. The company has
tendered the defense of the Lawsuits to manufacturer
defendants whose gloves were distributed by the company.
The company will continue to vigorously pursue indemnifica-
tion from latex product manufacturers. The company’s
insurers are paying all costs of defense in the Lawsuits, and
the company believes, at this time, that future defense costs
and any potential liability should be adequately covered by
the insurance, subject to policy limits and insurer solvency.
Most of the Lawsuits are at the early stages of trial prepara-

tion. Several Lawsuits that were scheduled for trial have
been dismissed on summary judgment. After analyzing the
above factors at this point in time, it would appear that the
likelihood of a material loss to the company with respect to
the Lawsuits is remote.

The company is party to various other legal actions that

are ordinary and incidental to its business. While the out-
come of legal actions cannot be predicted with certainty,
management believes the outcome of these proceedings will
not have a material adverse effect on the company’s financial
condition or results of operations.

Note 18 – Condensed Consolidating Financial Information

The following tables present condensed consolidating
financial information for: Owens & Minor, Inc.; on a
combined basis, the guarantors of Owens & Minor, Inc.’s
Notes; and the non-guarantor subsidiaries of the Notes.
Separate financial statements of the guarantor subsidiaries are
not presented because the guarantors are jointly, severally
and unconditionally liable under the guarantees and the
company believes the condensed consolidating financial
information is more meaningful in understanding the
financial position, results of operations and cash flows of the
guarantor subsidiaries.

Condensed Consolidating Financial Information

(in thousands)

Year ended
December 31, 2000

Statements of Operations
Net sales
Cost of goods sold

Gross margin

Selling, general and administrative expenses
Depreciation and amortization
Interest expense, net
Intercompany interest expense, net
Discount on accounts receivable securitization
Distributions on mandatorily redeemable

preferred securities

Nonrecurring restructuring credit

Total expenses

Income (loss) before income taxes
Income tax provision (benefit)

Net income (loss)

Year ended
December 31, 1999

Statements of Operations
Net sales
Cost of goods sold

Gross margin

preferred securities

Nonrecurring restructuring credit

Total expenses

Income (loss) before income taxes
Income tax provision (benefit)

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

–

$3,503,583

3,127,911

375,672

–

137

–

17,869

(7,904)

–

266,684

1,384

21,515

(5,303)

30,520

–

(750)

–

(22,616)

6,866

7,095

–

10,102

312,681

(7,271)

(10,102)

(4,445)

62,991

27,841

7,271

3,676

$ (5,657)

35,150

$ 3,595

–

$3,503,583

3,127,911

375,672

268,205

21,515

12,566

–

6,881

7,095

(750)

315,512

60,160

27,072

33,088

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

–

16,798

(6,976)

–

$3,194,134

2,851,556

342,578

249,390

19,365

(4,938)

25,326

–

(1,000)

–

561

–

(18,350)

5,208

7,095

–

9,831

288,175

(5,486)

(9,831)

(4,326)

54,403

23,865

5,486

2,540

–

$3,194,134

2,851,556

342,578

249,960

19,365

11,860

–

5,240

7,095

(1,000)

292,520

50,058

22,079

27,979

Net income (loss)

$ (5,505)

30,538

$ 2,946

Condensed Consolidating Financial Information

(in thousands)

Year ended
December 31, 1998

Statements of Operations

Net sales
Cost of goods sold

Gross margin

preferred securities

Nonrecurring restructuring expense

Total expenses

Income (loss) before income taxes
Income tax provision (benefit)

Net income (loss)
Dividends on preferred stock

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations

Consolidated

–

17,205

(10,854)

–

$3,090,048

2,755,158

334,890

247,224

18,270

(3,139)

24,469

–

11,200

–

243

–

(13,615)

4,588

4,494

–

6,356

298,091

(4,290)

(6,356)

(2,574)

(3,782)

1,898

36,799

15,424

21,375

–

4,290

1,738

2,552

–

$3,090,048

2,755,158

334,890

247,472

18,270

14,066

–

4,655

4,494

11,200

300,157

34,733

14,588

20,145

1,898

18,247

Net income (loss) attributable to common stock

$ (5,680)

21,375

$ 2,552

Condensed Consolidating Financial Information

(in thousands)

December 31, 2000

Balance Sheets
Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Intercompany advances, net
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Intercompany investments
Other assets, net

Total assets

Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other accrued liabilities

Total current liabilities

Long-term debt
Intercompany long-term debt
Accrued pension and retirement plans
Deferred income taxes

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

507

118

–

129,447

24,224

315,570

79,645

16,173

237,681

–

(209,092)

–

129,971

435,730

28,590

–

305,441

8,735

24,236

204,849

15,001

35,157

–

626

261,905

315,570

–

16,190

594,291

24,239

204,849

–

136,083

(456,525)

277

–

44,169

$444,147

$714,973

$ 164,953

$(456,525)

$867,548

–

(85)

1,717

$291,507

9,940

18,828

39,331

–

(2,241)

1,657

1,632

359,606

(584)

152,200

136,083

–

(930)

672

–

8,879

1,304

–

(3)

–

(136,083)

–

$291,507

9,940

16,502

42,705

360,654

152,872

–

8,879

371

Total liabilities

288,985

370,461

(587)

(136,083)

522,776

Company-obligated mandatorily redeemable preferred

securities of subsidiary trust, holding solely convertible
debentures of Owens & Minor, Inc.

Shareholders’ equity

Common stock
Paid-in capital
Retained earnings
Accumulated other comprehensive loss

–

132,000

–

132,000

66,360

18,039

71,391

(628)

40,879

258,979

44,654

–

5,583

15,001

12,956

–

(46,462)

(273,980)

–

66,360

18,039

129,001

(628)

Total shareholders’ equity

155,162

344,512

33,540

(320,442)

212,772

Total liabilities and shareholders’ equity

$444,147

$714,973

$ 164,953

$(456,525)

$867,548

Condensed Consolidating Financial Information

(in thousands)

December 31, 1999

Balance Sheets
Assets
Current assets

Cash and cash equivalents
Accounts and notes receivable, net
Merchandise inventories
Intercompany advances, net
Other current assets

Total current assets
Property and equipment, net
Goodwill, net
Intercompany investments
Deferred income taxes
Other assets, net

Total assets

Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Accrued payroll and related liabilities
Deferred income taxes
Other accrued liabilities

Total current liabilities

Long-term debt
Intercompany long-term debt
Accrued pension and retirement plans

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

507

158

–

112,088

342,478

114,839

–

157,315

(67,049)

(90,266)

–

19,172

–

157,822

406,847

24,577

–

305,441

388

9,894

25,877

210,837

15,001

(243)

27,788

–

136,083

(456,525)

–

1,213

–

669

226,927

342,478

–

19,172

589,246

25,877

210,837

–

145

38,895

$473,545

$686,107

$161,873

$(456,525)

$865,000

–

(8)

1,354

$303,490

6,883

17,186

40,965

–

(1,775)

1,703

1,346

368,524

(72)

172,600

136,083

1,953

–

6,268

–

(136,083)

–

$303,490

6,883

15,403

44,022

369,798

174,553

–

6,268

Total liabilities

310,029

376,745

(72)

(136,083)

550,619

Company-obligated mandatorily redeemable preferred

securities of subsidiary trust, holding solely convertible
debentures of Owens & Minor, Inc.

Shareholders’ equity

Common stock
Paid-in capital
Retained earnings

–

132,000

–

132,000

65,422

12,890

85,204

40,879

258,979

9,504

5,583

15,001

9,361

(46,462)

(273,980)

65,422

12,890

–

104,069

Total shareholders’ equity

163,516

309,362

29,945

(320,442)

182,381

Total liabilities and shareholders’ equity

$473,545

$686,107

$161,873

$(456,525)

$865,000

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

Condensed Consolidating Financial Information

(in thousands)

Year ended
December 31, 2000

Statements of Cash Flows
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities:
Depreciation and amortization
Nonrecurring restructuring credit
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and notes receivable
Collections of sold accounts receivable, net
Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and

current liabilities

Other, net

$(5,657)

$ 35,150

$ 3,595

–

(619)

–

21,515

(750)

(205)

2,973

397

–

87,467

23,935

(14,783)

346

3,191

8,876

144

–

(469)

–

(170)

(25,612)

(97,060)

–

(296)

1,187

Cash provided by (used for) operating activities

(2,739)

164,719

(118,825)

Investing activities
Additions to property and equipment
Additions to computer software
Other, net

Cash used for investing activities

Financing activities
Reductions of debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

(155)

(8,002)

(11,622)

(155)

(19,621)

(20,400)

(1,245)

(3)

–

(3)

–

27,868

(146,693)

118,825

(1,255)

(8,156)

4,837

2,800

–

Cash provided by (used for) ﬁnancing activities

2,894

(145,138)

118,825

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year

–
507

(40)
158

Cash and cash equivalents at end of year

$ 507

118

(3)
4

–

–
–

–

$33,088

21,515

(750)

(1,293)

2,973

227

(25,612)

(9,593)

23,935

(14,783)

8,926

4,522

43,155

(8,005)

(11,622)

(152)

(19,779)

(21,645)

–

1,545

(8,156)

4,837

(23,419)

(43)
669

626

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

$ (5,505)

$ 30,538

$ 2,946

Condensed Consolidating Financial Information

(in thousands)

Year ended
December 31, 1999

Statements of Cash Flows

Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities:
Depreciation and amortization
Nonrecurring restructuring credit
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and notes receivable
Sales of accounts receivable, net
Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and current

liabilities

Other, net

Investing activities
Net cash paid for acquisition of business
Additions to property and equipment
Additions to computer software
Other, net

–

(396)

–

19,365

(1,000)

10,407

1,741

292

–

(1,775)

–

267

30,612

1,970

(32,101)

(42,397)

86,871

(39)

(11,536)

3,049

(1,404)

–

(82,699)

(8,933)

(13,172)

(1,222)

(1,200)

–

343

333

–

Cash provided by (used for) operating activities

(2,891)

94,847

Cash used for investing activities

(1,222)

(104,741)

(1,200)

Financing activities
Additions to debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

22,600

(11,045)

–

(7,520)

2,578

10,175

(2,741)

–

870

–

Cash provided by ﬁnancing activities

4,115

10,012

870

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

505

118

Cash and cash equivalents at end of year

507

158

–

$ 27,979

19,365

(1,000)

8,236

1,741

559

30,612

(30,131)

(42,397)

86,871

(11,232)

1,686

92,289

(82,699)

(8,933)

(13,172)

(2,359)

(107,163)

25,178

–

(2,741)

(7,520)

14,997

123

546

669

Owens &
Minor, Inc.

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Eliminations Consolidated

Condensed Consolidating Financial Information

(in thousands)

Year ended
December 31, 1998

Statements of Cash Flows
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to cash

provided by (used for) operating activities:
Depreciation and amortization
Nonrecurring restructuring provision
Deferred income taxes
Provision for LIFO reserve
Provision for losses on accounts and notes receivable
Collections of sold accounts receivable, net
Changes in operating assets and liabilities:

Accounts and notes receivable
Merchandise inventories
Accounts payable
Net change in other current assets and

current liabilities

Other, net

$ (3,782)

$ 21,375

2,552

–

18,270

11,200

22,737

1,536

262

–

(74)

8,899

(23,375)

460

1,506

(1,952)

(1,895)

–

234

(35,000)

8,691

–

841

–

Cash provided by (used for) operating activities

(1,816)

56,983

(22,682)

Investing activities
Additions to property and equipment
Additions to computer software
Other, net

Cash used for investing activities

Financing activities
Net proceeds from issuance of mandatorily

redeemable preferred securities

Repurchase of preferred stock
Reductions of debt
Change in intercompany advances
Other financing, net
Cash dividends paid
Proceeds from exercise of stock options

–

(8,053)

(4,556)

160

(12,449)

–

(4,732)

(115,000)

(32,550)

–

132,000

–

159,443

(50,126)

(109,317)

–

5,554

(9,268)

3,923

–

Cash provided by (used for) ﬁnancing activities

1,816

(44,572)

22,683

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

–

505

(38)

Cash and cash equivalents at end of year

505

–

$ 20,145

18,270

11,200

22,737

1,536

496

(35,000)

8,617

8,899

(23,375)

(651)

(389)

32,485

(8,053)

(4,556)

160

(12,449)

127,268

(115,000)

(32,550)

–

5,554

(9,268)

3,923

(20,073)

(37)

583

546

I N D E P E N D E N T

A U D I T O R S ’

R E P O R T

Owens & Minor, Inc. and Subsidiaries

The Board of Directors and Shareholders
Owens & Minor, Inc.:

We have audited the accompanying consolidated balance sheets of Owens & Minor, Inc. and subsidiaries (the company)

as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders’ equity and
cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements
are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial

position of Owens & Minor, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

Richmond, Virginia
January 30, 2001

R E P O R T

O F M A N A G E M E N T

The management of Owens & Minor, Inc. is responsible for the preparation, integrity and objectivity of the consolidated

financial statements and related information presented in this annual report. The consolidated financial statements were
prepared in conformity with generally accepted accounting principles applied on a consistent basis and include, when
necessary, the best estimates and judgments of management.

The company maintains a system of internal controls that provides reasonable assurance that its assets are safeguarded
against loss or unauthorized use, that transactions are properly recorded and that financial records provide a reliable basis for
the preparation of the consolidated financial statements.

The Audit Committee of the Board of Directors, composed entirely of directors who are not current employees of Owens
& Minor, Inc., meets periodically and privately with the company’s independent auditors and internal auditors, as well as with
company management, to review accounting, auditing, internal control and financial reporting matters. The independent
auditors and internal auditors have direct access to the Audit Committee with and without management present to discuss the
results of their activities.

G. Gilmer Minor, III
Chairman & Chief Executive Ofﬁcer

Richard F. Bozard
Vice President & Treasurer
Acting Chief Financial Ofﬁcer

Q U A R T E R L Y

F I N A N C I A L

I N F O R M A T I O N (1)

Owens & Minor, Inc. and Subsidiaries

(in thousands, except per share data)

Quarters

Net sales(2)

Gross margin(2)

Net income

Per common share:

Net income
Basic
Diluted
Dividends

Market price

High
Low

Quarters

Net sales(2)

Gross margin(2)

Net income

Per common share:

Net income
Basic
Diluted
Dividends

Market price

High
Low

2000

1st

2nd(3)

3rd

4th

$856,742

$875,230

$874,318

$897,293

91,961

6,840

92,803

8,015

93,121

8,466

97,787

9,767

0.21
0.20
0.06

12.00
8.13

0.25
0.23
0.0625

17.19
10.25

0.26
0.24
0.0625

18.25
14.69

1999

0.30
0.27
0.0625

$ 18.38
11.88

1st

2nd(3)

3rd

4th

$743,057

$774,351

$813,788

$862,939

80,702

5,491

82,338

6,480

87,168

7,142

92,371

8,866

0.17
0.17
0.05

17.00
9.56

0.20
0.19
0.06

12.44
9.50

0.22
0.21
0.06

13.00
9.63

0.27
0.25
0.06

$ 10.63
7.56

(1) On July 30, 1999, the company acquired certain net assets of Medix, Inc. This acquisition was accounted for as a purchase.
(2) Net sales and gross margin have been restated for all periods in accordance with Emerging Issues Task Force Issue 00-10, Accounting for Shipping

and Handling Fees and Costs. See Note 1 to the Consolidated Financial Statements.

(3) In the second quarters of 2000 and 1999, the company reduced the restructuring accrual by $0.8 million and $1.0 million, or $0.4 million and

$0.6 million after taxes. See Note 3 to the Consolidated Financial Statements.

F O R M 1 0 - K

A N N U A L

R E P O R T

Owens & Minor, Inc. and Subsidiaries

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2000

[

] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission File Number 1-9810

OWENS & MINOR, INC.
(Exact name of registrant as speciﬁed in its charter)

Virginia
(State or other jurisdiction of
incorporation or organization)

54-01701843
(I.R.S. Employer Identiﬁcation No.)

4800 Cox Road, Glen Allen, Virginia
(Address of principal executive ofﬁces)

23060
(Zip Code)

Registrant’s telephone number, including area code (804) 747-9794

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark if disclosure of delinquent

ﬁlers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in deﬁnitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

The aggregate market value of Common Stock held by

non-afﬁliates (based upon the closing sales price) was
approximately $522,151,087 as of February 8, 2001.

The number of shares of the Company’s Common Stock

outstanding as of February 8, 2001 was 33,258,031 shares.

DOCUMENTS INCORPORATED BY REFERENCE
The Proxy statement for the annual meeting of security
holders on April 26, 2001 is incorporated by reference
into Part III of this Form 10-K.

Title of each class

Common Stock,
$2 par value
Preferred Stock

Purchase Rights

107⁄8% Senior Subordinated

Notes due 2006

$2.6875 Term Convertible

Securities, Series A

Name of each exchange
on which registered

New York Stock
Exchange
New York Stock
Exchange
New York Stock
Exchange
Not Listed

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has
ﬁled all reports required to be ﬁled by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to ﬁle such reports) and (2) has
been subject to such ﬁling requirements for the past 90
days. Yes X No

ITEM CAPTIONS AND INDEX –
FORM 10-K ANNUAL REPORT
Item No.

Page

Part I
1.
2.
3.
4.

Part II

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-22
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 43-44
Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . N/A

5. Market for Registrant’s

Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . 53, 56
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 18

6.
7. Management’s Discussion and

Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 23-26

7A. Quantitative and Qualitative Disclosures

about Market Risk . . . . . . . . . . . . . . . . . . . . . . 26, 35-36
Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . . . . See Item 14
Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . N/A

Part III

10. Directors and Executive Officers of

11.
12.

13.
Part IV
14.

the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . (a), 14-15
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . (a)
Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . . . (a)
Certain Relationships and Related Transactions . . . . . (a)

Exhibits, Financial Statement Schedules,
and Reports on Form 8-K

a. Consolidated Statements of Income

for the Years Ended
Dec. 31, 2000, Dec. 31, 1999 and Dec. 31, 1998 . . . . 27
Consolidated Balance Sheets at
Dec. 31, 2000 and Dec. 31, 1999 . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows
for the Years Ended
Dec. 31, 2000, Dec. 31, 1999
and Dec. 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statement of Changes in
Shareholders’ Equity for the Years Ended
Dec. 31, 2000, Dec. 31, 1999
and Dec. 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements for the
Years Ended Dec. 31, 2000, Dec. 31, 1999
and Dec. 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 31-51
Report of Independent Auditors . . . . . . . . . . . . . . . . 52
b. Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . None
c. The index to exhibits has been filed as separate pages
of the 2000 Form 10-K and is available to shareholders
on request from the Secretary of the company at the
principal executive offices

(a) Part III will be incorporated by reference from the
registrant’s 2001 Proxy Statement pursuant to instructions G(1)
and G(3) of the General Instructions to Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 5th day of March, 2001.

OWENS & MINOR, INC.

/s/ G. Gilmer Minor, III
G. Gilmer Minor, III
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant on the 5th day of March
2001 and in the capacities indicated.

/s/ G. Gilmer Minor, III
G. Gilmer Minor, III

/s/ Richard F. Bozard
Richard F. Bozard

Chairman and Chief Executive
Officer and Director (Principal
Executive Officer)

Vice President and Treasurer
Acting Chief Financial Officer
(Principal Financial Officer)

/s/ Olwen B. Cape
Olwen B. Cape

Vice President and Controller
(Principal Accounting Officer)

/s/ A. Marshall Acuff, Jr.
A. Marshall Acuff, Jr.

/s/ Henry A. Berling
Henry A. Berling

/s/ Josiah Bunting, III
Josiah Bunting, III

/s/ John T. Crotty
John T. Crotty

/s/ James B. Farinholt, Jr.
James B. Farinholt, Jr.

/s/ Vernard W. Henley
Vernard W. Henley

/s/ E. Morgan Massey
E. Morgan Massey

/s/ Peter S. Redding
Peter S. Redding

/s/ James E. Rogers
James E. Rogers

/s/ James E. Ukrop
James E. Ukrop

/s/ Anne Marie Whittemore
Anne Marie Whittemore

Director

C O R P O R A T E I N F O R M A T I O N

Owens & Minor, Inc. and Subsidiaries

Annual Meeting

Duplicate Mailings

The annual meeting of Owens & Minor, Inc. shareholders will
be held on Thursday, April 26, 2001, at the Virginia Historical
Society, 428 North Boulevard, Richmond, Virginia.

Transfer Agent, Registrar and Dividend Disbursing Agent

When a shareholder owns shares in more than one account or
when several shareholders live at the same address, they may
receive multiple copies of annual reports. To eliminate multiple
mailings, please write to the transfer agent.

The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, NY 10286
800-524-4458
shareowner-svcs@bankofny.com

Counsel

Hunton & Williams
Richmond, Virginia

Independent Auditors

KPMG LLP
Richmond, Virginia

Market for the Registrant’s Common Equity and Related

Stockholder Matters

Owens & Minor, Inc.’s common stock trades on the New York
Stock Exchange under the symbol OMI. As of December 31,
2000, there were approximately 15,000 common shareholders.

Press Releases

Owens & Minor, Inc.’s press releases are available through
Company News On-Call by fax-on-demand at 800-758-5804, ext.
667125, or at www.prnewswire.com or at www.owens-minor.com.

Corporate Communications and Investor Relations

804-747-9794

Dividend Reinvestment and Stock Purchase Plan

The Dividend Reinvestment and Stock Purchase Plan offers
holders of Owens & Minor, Inc. common stock an opportunity
to buy additional shares automatically with cash dividends and
to buy additional shares with voluntary cash payments. Under
the plan, the company pays all brokerage commissions and
service charges for the acquisition of shares. Information
regarding the plan may be obtained by writing the transfer
agent at the following address:

The Bank of New York
Dividend Reinvestment Department
P.O. Box 1958
Newark, NJ 07101-9774

Shareholder Records

Direct correspondence concerning Owens & Minor, Inc. stock
holdings or change of address to The Bank of New York’s
Shareholder Services Department (listed above). Direct corre-
spondence concerning lost or missing dividend checks to:

The Bank of New York
Receive and Deliver Department-11W
P.O. Box 11002
Church Street Station
New York, NY 10286

50 YearsOf Sales Growth

(in thousands)

Owens & Minor, founded in
1882 and incorporated in
1926, is the nation’s leading
distributor of national name
brand medical/surgical sup-
plies. In the last five decades,
the company has achieved
an impressive record of sales
growth. With this strong
foundation, Owens & Minor
is prepared for the future.

Year

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

Net Sales

Year

Net Sales

3,406

3,692

4,233

4,533

4,550

4,815

6,706

7,393

7,773

7,616

9,035

9,660

10,630

11,210

11,981

13,271

14,602

15,472

16,564

19,816

22,994

28,578

33,745

38,230

43,365

54,476

1976

1977

1978

1979

1980

1981(1)

1981(2)

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

67,724

83,532

100,971

112,685

131,520

149,543

143,684

211,356

255,218

306,657

367,257

467,582

576,805

731,565

952,935

1,219,617

1,029,464

1,179,633

1,399,855

2,399,587

2,981,265

3,025,341

3,124,062

3,090,048

3,194,134

3,503,583

Source: Company Records. Years prior to 1991 may not be comparable as data has not been restated for
changes in accounting principles or acquisitions accounted for under the pooling of interests method. Data for
years prior to 1981 is for fiscal years ended March 31.
(1) Year ended March 31st.
(2) Nine months ended December 31st.

OWENS & MINOR, INC.

C O R P O R A T E O F F I C E

Street Address

4800 Cox Road

Glen Allen, Virginia 23060

Mailing Address

Post Office Box 27626

Richmond, Virginia 23261-7626

804-747-9794